UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~August~~May 1, ~~2021~~2022


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-06395

____________________________________

SEMTECH CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________



Delaware						95-2119684
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

200 Flynn Road, Camarillo, California, 93012-8790

(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code: (805) 498-2111

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock par value $0.01 per share

SMTC

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Number of shares of common stock, $0.01 par value per share, outstanding at ~~August~~May 27, ~~2021: 64,396,741~~2022: 63,477,783

SEMTECH CORPORATION

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED ~~AUGUST~~MAY 1, ~~2021~~2022

Unless the context otherwise requires, the use of the terms "Semtech," "the Company," "we," "us" and "our" in this Quarterly Report on Form 10-Q refers to Semtech Corporation and, as applicable, its consolidated subsidiaries. This Quarterly Report on Form 10-Q may contain references to the Company’s trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.

Special Note Regarding Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance, future operational performance, the anticipated impact of specific items on future earnings, and our plans, objectives and expectations. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "estimate," "should," "will," "designed to," "projections," or "business outlook," or other similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and events to differ materially from those projected. Potential factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the uncertainty surrounding the impact and duration of supply chain constraints and any associated disruptions; the uncertainty surrounding the impact and duration of the COVID-19 ~~pandemic on global~~pandemic; export restrictions and laws affecting the Company's trade and investments and tariffs or the occurrence of trade wars; worldwide economic ~~conditions~~ and onpolitical disruptions as a result of the ~~Company’s business~~current conflict between Russia and ~~results of operations;~~Ukraine; competitive changes in the marketplace including, but not limited to, the pace of growth or adoption rates of applicable products or technologies; downturns in the business cycle; decreased average selling prices of the Company’s products; the Company’s reliance on a limited number of suppliers and subcontractors for components and materials; changes in projected or anticipated end-user markets; ~~export restrictions and laws affecting the Company’s trade and investments including with respect to Huawei~~ ~~and certain of its affiliates and other entities identified by the U.S. government, and tariffs or the occurrence of trade wars;~~ and the ~~Company’s~~Company's ability to forecast and achieve anticipated net sales and earnings estimates in light of periodic economic uncertainty, including impacts arising from Asian, European and global economic ~~dynamics.~~

~~Additionally, forward-looking statements should be considered in conjunction with the cautionary statements contained in this Quarterly Report on Form 10-Q, including, without limitation, information~~dynamic; and those factors set forth under ~~the captions "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and~~ "Risk Factors" ~~and additional factors that accompany~~in the ~~related forward-looking statements in this Quarterly Report on Form 10-Q, in our~~Company’s Annual Report on Form 10-K for the fiscal year ended January ~~31, 2021 including, without limitation, information under the caption "Risk Factors," and in our other filings~~30, 2022 filed with the ~~U.S.~~ Securities and Exchange Commission ~~(“SEC”~~(the “SEC”). on March 16, 2022, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with SEC. In light of the significant risks and uncertainties inherent in the forward-looking information included herein that may cause actual performance and results to differ materially from those predicted, any such forward-looking information should not be regarded as representations or guarantees by the Company of future performance or results, or that its objectives or plans will be achieved, or that any of its operating expectations or financial forecasts will be realized. Reported results should not be considered an indication of future performance. Investors are cautioned not to place undue reliance on any forward-looking information contained herein, which reflect management’s analysis only as of the date hereof. Except as required by law, the Company assumes no obligation to publicly release the results of any update or revision to any forward-looking statement that may be made to reflect new information, events or circumstances after the date hereof or to reflect the occurrence of unanticipated or future events, or otherwise.

The factors noted above, and the risks included in our SEC filings, may be increased or intensified as a result of the COVID-19 pandemic. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. In addition to regarding forward-looking statements with caution, you should consider that the preparation of the consolidated financial statements requires us to draw conclusions and make interpretations, judgments, assumptions and estimates with respect to certain factual, legal, and accounting matters. Our consolidated financial statements might have been materially impacted if we had reached different conclusions or made different interpretations, judgments, assumptions or estimates.

PART I - FINANCIAL INFORMATION

ITEM 1.Financial Statements

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended
		August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020			May 1, 2022		May 2, 2021
Net sales	Net sales	$	185,004	$	143,660	$	355,376	$	276,362	Net sales	$	202,149	$	170,372
Cost of sales	Cost of sales	69,572		55,409		135,083		107,350		Cost of sales	71,896		65,511
Gross profit	Gross profit	115,432		88,251		220,293		169,012		Gross profit	130,253		104,861
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Selling, general and administrative	Selling, general and administrative	41,977		38,255		80,781		72,855		Selling, general and administrative	43,364		38,804
Product development and engineering	Product development and engineering	35,497		29,220		72,287		56,806		Product development and engineering	38,789		36,790
Intangible amortization	Intangible amortization	1,298		2,020		2,596		4,860		Intangible amortization	1,048		1,298

Changes in the fair value of contingent earn-out obligations		—		—		—		(33)

Total operating costs and expenses	Total operating costs and expenses	78,772		69,495		155,664		134,488		Total operating costs and expenses	83,201		76,892
Operating income	Operating income	36,660		18,756		64,629		34,524		Operating income	47,052		27,969
Interest expense	Interest expense	(1,185)		(1,252)		(2,384)		(2,811)		Interest expense	(1,197)		(1,199)
Non-operating income (expense), net		213		(176)		307		247
Non-operating income, net										Non-operating income, net	262		94
Investment impairments and credit loss reserves	Investment impairments and credit loss reserves	(468)		(1,485)		(714)		(5,115)		Investment impairments and credit loss reserves	(24)		(246)
Income before taxes and equity in net gains (losses) of equity method investments		35,220		15,843		61,838		26,845
Provision (benefit) for income taxes		2,963		(416)		6,161		943
Net income before equity in net gains (losses) of equity method investments		32,257		16,259		55,677		25,902
Equity in net gains (losses) of equity method investments		674		(137)		752		(148)
Income before taxes and equity in net gains of equity method investments										Income before taxes and equity in net gains of equity method investments	46,093		26,618
Provision for income taxes										Provision for income taxes	8,069		3,198
Net income before equity in net gains of equity method investments										Net income before equity in net gains of equity method investments	38,024		23,420
Equity in net gains of equity method investments										Equity in net gains of equity method investments	24		78
Net income	Net income	32,931		16,122		56,429		25,754		Net income	38,048		23,498
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	(2)		(3)		(4)		(6)		Net loss attributable to noncontrolling interest	(1)		(2)
Net income attributable to common stockholders	Net income attributable to common stockholders	$	32,933	$	16,125	$	56,433	$	25,760	Net income attributable to common stockholders	$	38,049	$	23,500
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.51	$	0.25	$	0.87	$	0.39	Basic	$	0.59	$	0.36
Diluted	Diluted	$	0.50	$	0.24	$	0.86	$	0.39	Diluted	$	0.59	$	0.36
Weighted-average number of shares used in computing earnings per share:	Weighted-average number of shares used in computing earnings per share:									Weighted-average number of shares used in computing earnings per share:
Basic	Basic	64,721		65,084		64,905		65,337		Basic	63,950		65,089
Diluted	Diluted	65,584		66,004		65,849		66,099		Diluted	64,553		66,110

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

Three Months Ended Six Months Ended
August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Net income $ 32,931 $ 16,122 $ 56,429 $ 25,754
Other comprehensive income (loss), net:
Unrealized gain on foreign currency cash flow hedges, net — 479 — 358
Reclassifications of realized loss on foreign currency cash flow hedges, net to net income — 6 — 6
Unrealized gain (loss) on interest rate cash flow hedges, net 265 (317) 729 (1,620)
Reclassifications of realized (gain) loss on interest rate cash flow hedges, net to net income (187) 94 (366) 73
Unrealized gain on available-for-sale securities — 133 — 386
Reclassification of realized gain on available-for-sale securities, net to net income — (757) — (757)
Change in defined benefit plans, net 159 193 314 379
Other comprehensive income (loss), net 237 (169) 677 (1,175)
Comprehensive income 33,168 15,953 $ 57,106 $ 24,579
Comprehensive loss attributable to noncontrolling interest (2) (3) (4) (6)
Comprehensive income attributable to common stockholders $ 33,170 $ 15,956 $ 57,110 $ 24,585


	Three Months Ended
	May 1, 2022		May 2, 2021
Net income	$	38,048	$	23,498
Other comprehensive income, net:


Unrealized gain on interest rate cash flow hedges, net	1,258		464
Reclassifications of realized loss (gain) on interest rate cash flow hedges, net to net income	119		(179)


Change in defined benefit plans, net	23		155

Other comprehensive income, net	1,400		440
Comprehensive income	$	39,448	$	23,938
Comprehensive loss attributable to noncontrolling interest	(1)		(2)
Comprehensive income attributable to common stockholders	$	39,449	$	23,940

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


		August 1, 2021		January 31, 2021			May 1, 2022		January 30, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	262,657	$	268,891	Cash and cash equivalents	$	275,184	$	279,601
Accounts receivable, less allowances of $776 and $721, respectively		73,062		70,433
Accounts receivable, less allowances of $692 and $747, respectively						Accounts receivable, less allowances of $692 and $747, respectively	66,360		71,507
Inventories	Inventories	103,031		87,494		Inventories	106,901		114,003
Prepaid taxes	Prepaid taxes	14,179		22,083		Prepaid taxes	2,442		5,983
Assets held for sale						Assets held for sale	9,065		—
Other current assets	Other current assets	31,920		25,827		Other current assets	35,471		31,201
Total current assets	Total current assets	484,849		474,728		Total current assets	495,423		502,295
Non-current assets:	Non-current assets:					Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $245,422 and $233,779, respectively		132,140		130,934
Property, plant and equipment, net of accumulated depreciation of $247,403 and $254,764, respectively						Property, plant and equipment, net of accumulated depreciation of $247,403 and $254,764, respectively	133,590		134,940
Deferred tax assets	Deferred tax assets	24,816		25,483		Deferred tax assets	25,643		27,803
Goodwill	Goodwill	351,141		351,141		Goodwill	350,306		351,141
Other intangible assets, net	Other intangible assets, net	9,150		11,746		Other intangible assets, net	5,756		6,804
Other assets	Other assets	97,908		88,070		Other assets	105,198		107,928
TOTAL ASSETS	TOTAL ASSETS	$	1,100,004	$	1,082,102	TOTAL ASSETS	$	1,115,916	$	1,130,911
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	52,473	$	50,189	Accounts payable	$	48,381	$	50,695
Accrued liabilities	Accrued liabilities	63,893		59,384		Accrued liabilities	60,793		77,704
Liabilities held for sale						Liabilities held for sale	1,242		—
Total current liabilities	Total current liabilities	116,366		109,573		Total current liabilities	110,416		128,399
Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Deferred tax liabilities	Deferred tax liabilities	1,127		976		Deferred tax liabilities	1,066		1,132
Long term debt	Long term debt	175,436		179,195		Long term debt	181,797		171,676
Other long-term liabilities	Other long-term liabilities	98,452		93,405		Other long-term liabilities	87,464		91,929

Commitments and contingencies (Note 11)		0		0
Commitments and contingencies (Note 12)						Commitments and contingencies (Note 12)	0		0

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 64,396,741 outstanding and 78,136,144 issued and 65,098,379 outstanding, respectively		785		785
Treasury stock, at cost, 13,739,403 shares and 13,037,765 shares, respectively		(499,199)		(438,798)
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 63,466,933 outstanding and 78,136,144 issued and 64,098,565 outstanding, respectively						Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 63,466,933 outstanding and 78,136,144 issued and 64,098,565 outstanding, respectively	785		785
Treasury stock, at cost, 14,669,211 shares and 14,037,579 shares, respectively						Treasury stock, at cost, 14,669,211 shares and 14,037,579 shares, respectively	(596,187)		(549,942)
Additional paid-in capital	Additional paid-in capital	486,693		473,728		Additional paid-in capital	496,151		491,956
Retained earnings	Retained earnings	727,629		671,196		Retained earnings	834,909		796,860
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(7,491)		(8,168)		Accumulated other comprehensive loss	(675)		(2,075)
Total stockholders’ equity	Total stockholders’ equity	708,417		698,743		Total stockholders’ equity	734,983		737,584

Noncontrolling interest	Noncontrolling interest	206		210		Noncontrolling interest	190		191
Total equity	Total equity	708,623		698,953		Total equity	735,173		737,775
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	1,100,004	$	1,082,102	TOTAL LIABILITIES AND EQUITY	$	1,115,916	$	1,130,911

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


		Three Months Ended August 1, 2021																										Three Months Ended May 1, 2022
		Common Stock									Accumulated Other Comprehensive Loss																	Common Stock													Accumulated Other Comprehensive Loss
		Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings				Stockholders’ Equity				Noncontrolling Interest				Total Equity				Number of Shares Outstanding				Amount			Treasury Stock, at Cost			Additional Paid-in Capital			Retained Earnings					Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance at May 2, 2021		64,897,920	$	785	$	(460,249)	$	476,773	$	694,696			$	(7,728)			$	704,277			$	208				$	704,485
Balance at January 30, 2022																										Balance at January 30, 2022		64,098,565		$	785		$	(549,942)		$	491,956		$	796,860	$	(2,075)		$	737,584		$	191		$	737,775

Net income	Net income	—	—		—		—		32,933		—				32,933				(2)				32,931			Net income		—		—			—			—			38,049		—			38,049			(1)			38,048
Other comprehensive income	Other comprehensive income	—	—		—		—		—		237				237				—				237			Other comprehensive income		—		—			—			—			—		1,400			1,400			—			1,400
Share-based compensation	Share-based compensation	—	—		—		12,334		—		—				12,334				—				12,334			Share-based compensation		—		—			—			12,103			—		—			12,103			—			12,103
Repurchase of common stock	Repurchase of common stock	(639,519)	—		(42,000)		—		—		—				(42,000)				—				(42,000)			Repurchase of common stock		(762,093)		—			(50,000)			—			—		—			(50,000)			—			(50,000)
Treasury stock reissued	Treasury stock reissued	138,340	—		3,050		(2,414)		—		—				636				—				636			Treasury stock reissued		130,461		—			3,755			(7,908)			—		—			(4,153)			—			(4,153)
Balance at August 1, 2021		64,396,741	$	785	$	(499,199)	$	486,693	$	727,629	$	(7,491)			$	708,417			$	206			$	708,623
Balance at May 1, 2022																										Balance at May 1, 2022		63,466,933		$	785		$	(596,187)		$	496,151		$	834,909	$	(675)		$	734,983		$	190		$	735,173


		Six Months Ended August 1, 2021																		Three Months Ended May 2, 2021
		Common Stock																		Common Stock									Accumulated Other Comprehensive Loss
		Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Stockholders’ Equity		Noncontrolling Interest		Total Equity			Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings				Stockholders’ Equity				Noncontrolling Interest				Total Equity
Balance at January 31, 2021	Balance at January 31, 2021	65,098,379	$	785	$	(438,798)	$	473,728	$	671,196	$	(8,168)	$	698,743	$	210	$	698,953	Balance at January 31, 2021	65,098,379	$	785	$	(438,798)	$	473,728	$	671,196			$	(8,168)			$	698,743			$	210			$	698,953

Net income	Net income	—	—		—		—		56,433		—		56,433		(4)		56,429		Net income	—	—		—		—		23,500		—				23,500				(2)				23,498
Other comprehensive income	Other comprehensive income	—	—		—		—		—		677		677		—		677		Other comprehensive income	—	—		—		—		—		440				440				—				440

Share-based compensation	Share-based compensation	—	—		—		24,530		—		—		24,530		—		24,530		Share-based compensation	—	—		—		12,196		—		—				12,196				—				12,196
Repurchase of common stock	Repurchase of common stock	(1,000,461)	—		(67,000)		—		—		—		(67,000)		—		(67,000)		Repurchase of common stock	(360,942)	—		(25,000)		—		—		—				(25,000)				—				(25,000)
Treasury stock reissued	Treasury stock reissued	298,823	—		6,599		(11,565)		—		—		(4,966)		—		(4,966)		Treasury stock reissued	160,483	—		3,549		(9,151)		—		—				(5,602)				—				(5,602)
Balance at August 1, 2021		64,396,741	$	785	$	(499,199)	$	486,693	$	727,629	$	(7,491)	$	708,417	$	206	$	708,623
Balance at May 2, 2021																			Balance at May 2, 2021	64,897,920	$	785	$	(460,249)	$	476,773	$	694,696	$	(7,728)			$	704,277			$	208			$	704,485

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY (CONTINUED)~~CASH FLOWS

(in ~~thousands, except share data)~~thousands)

(unaudited)

Three Months Ended July 26, 2020
Common Stock Accumulated Other Comprehensive Loss
Number of Shares Outstanding Amount Treasury Stock, at Cost Additional Paid-in Capital Retained Earnings Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at April 26, 2020 65,132,030 $ 785 $ (414,028) $ 460,961 $ 620,928 $ (7,172) $ 661,474 $ 243 $ 661,717
Net income — — — — 16,125 — 16,125 (3) 16,122
Other comprehensive loss — — — — — (169) (169) — (169)
Share-based compensation — — — 11,343 — — 11,343 — 11,343
Repurchase of common stock (232,871) — (12,387) — — — (12,387) — (12,387)
Treasury stock reissued 120,342 — 2,320 (1,213) — — 1,107 — 1,107
Balance at July 26, 2020 65,019,501 $ 785 $ (424,095) $ 471,091 $ 637,053 $ (7,341) $ 677,493 $ 240 $ 677,733

Six Months Ended July 26, 2020
Common Stock Accumulated Other Comprehensive Loss
Number of Shares Outstanding Amount Treasury Stock, at Cost Additional Paid-in Capital Retained Earnings Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at January 26, 2020 65,758,115 $ 785 $ (387,851) $ 458,579 $ 611,607 $ (6,166) $ 676,954 $ 246 $ 677,200
Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13 — — — — (314) — (314) — (314)
Net income — — — — 25,760 — 25,760 (6) 25,754
Other comprehensive loss — — — — — (1,175) (1,175) — (1,175)
Share-based compensation — — — 22,424 — — 22,424 — 22,424
Repurchase of common stock (1,087,913) — (42,387) — — — (42,387) — (42,387)
Treasury stock reissued 349,299 — 6,143 (9,912) — — (3,769) — (3,769)
Balance at July 26, 2020 65,019,501 $ 785 $ (424,095) $ 471,091 $ 637,053 $ (7,341) $ 677,493 $ 240 $ 677,733


	Three Months Ended
	May 1, 2022		May 2, 2021
Cash flows from operating activities:
Net income	$	38,048	$	23,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,668		7,420
Amortization of right-of-use assets	1,140		1,055

Investment impairments and credit loss reserves	24		246
Accretion of deferred financing costs and debt discount	121		121

Deferred income taxes	1,747		(29)
Share-based compensation	10,893		11,839
Loss (gain) on disposition of assets	8		(20)
Equity in net gains of equity method investments	(24)		(78)


Corporate-owned life insurance, net	(47)		2,562
Changes in assets and liabilities:
Accounts receivable, net	5,147		3,915
Inventories	712		(6,425)
Other assets	3,017		5,815
Accounts payable	(126)		1,513
Accrued liabilities	(16,808)		(14,659)

Other liabilities	(1,469)		(4,188)
Net cash provided by operating activities	50,051		32,585
Cash flows from investing activities:

Proceeds from sales of property, plant and equipment	—		32
Purchase of property, plant and equipment	(8,315)		(5,760)

Purchase of investments	(2,000)		(2,927)


Proceeds from corporate-owned life insurance	2,676		—
Premiums paid for corporate-owned life insurance	(2,676)		—

Net cash used in investing activities	(10,315)		(8,655)
Cash flows from financing activities:
Proceeds from revolving line of credit	10,000		—
Payments of revolving line of credit	—		(4,000)


Payment for employee share-based compensation payroll taxes	(4,570)		(6,230)
Proceeds from exercise of stock options	417		628
Repurchase of common stock	(50,000)		(25,000)

Net cash used in financing activities	(44,153)		(34,602)
Net decrease in cash and cash equivalents	(4,417)		(10,672)
Cash and cash equivalents at beginning of period	279,601		268,891
Cash and cash equivalents at end of period	$	275,184	$	258,219
Supplemental disclosure of cash flow information:
Interest paid	$	987	$	1,065
Income taxes paid	$	3,347	$	2,917
Non-cash investing and financing activities:
Accounts payable related to capital expenditures	$	3,808	$	2,355
Conversion of notes into equity	$	—	$	626

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

Six Months Ended
August 1, 2021 July 26, 2020
Cash flows from operating activities:
Net income $ 56,429 $ 25,754
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,221 14,340
Amortization of right-of-use assets 2,182 1,941
Investment impairments and credit loss reserves 714 5,115
Accretion of deferred financing costs and debt discount 241 242
Deferred income taxes 719 (6,209)
Share-based compensation 23,356 22,565
Loss (gain) on disposition of assets 2 (20)
Changes in the fair value of contingent earn-out obligations — (33)
Equity in net (gains) losses of equity method investments (752) 148
Corporate owned life insurance, net 3,626 2,030
Changes in assets and liabilities:
Accounts receivable, net (2,629) 10,255
Inventories (15,537) (4,538)
Other assets 2,434 (3,798)
Accounts payable 2,274 (5,820)
Accrued liabilities 2,874 543
Other liabilities (5,555) 784
Net cash provided by operating activities 85,599 63,299
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment 42 20
Purchase of property, plant and equipment (12,732) (14,640)
Purchase of investments (3,177) (6,688)
Proceeds from sale of investments — 327
Net cash used in investing activities (15,867) (20,981)
Cash flows from financing activities:
Payments of revolving line of credit (4,000) (8,000)
Deferred financing costs — (30)
Payment for employee share-based compensation payroll taxes (7,289) (6,750)
Proceeds from exercise of stock options 2,323 2,981
Repurchase of common stock (67,000) (42,387)
Net cash used in financing activities (75,966) (54,186)
Net decrease in cash and cash equivalents (6,234) (11,868)
Cash and cash equivalents at beginning of period 268,891 293,324
Cash and cash equivalents at end of period $ 262,657 $ 281,456
Supplemental disclosure of cash flow information:
Interest paid $ 2,120 $ 2,664
Income taxes paid $ 3,163 $ 4,632
Non-cash investing and financing activities:
Accounts payable related to capital expenditures $ 2,872 $ 1,377
Conversion of notes into equity $ 626 $ —

~~The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.~~

~~SEMTECH CORPORATION AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Organization and Basis of Presentation

Nature of Business

Semtech Corporation (together with its consolidated subsidiaries, the "Company" or "Semtech") is a leading global supplier of high performance analog and mixed-signal semiconductors and advanced algorithms. The end customers for the Company’s products are primarily original equipment manufacturers that produce and sell electronics.

Fiscal Year

The Company reports results on the basis of 52 and 53-week periods and ends its fiscal year on the last Sunday in January. The other quarters generally end on the last Sunday of April, July and October, although the first ~~and second quarters~~quarter of fiscal year ~~2022 end~~2023 ends on the first Sunday of ~~May and August, respectively.~~May. All quarters consist of 13 weeks except for one 14-week period in the fourth quarter of 53-week years. The ~~second~~first quarters of fiscal years ~~2022~~2023 and ~~2021~~2022 each consisted of 13 weeks.

Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company, in accordance with accounting principles generally accepted in the United States ("GAAP") and on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January ~~31, 2021~~30, 2022 ("Annual Report"). The Company’s interim unaudited condensed consolidated statements of income are referred to herein as the "Statements of Income." The Company’s interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of cash flows as the "Statements of Cash Flows." In the opinion of the Company, these interim unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the financial position of the Company for the interim periods presented. All intercompany balances have been eliminated. Because the interim unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for a complete set of consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report. The results reported in these interim unaudited condensed consolidated financial statements should not be regarded as indicative of results that may be expected for any subsequent period or for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~Recently~~Held for Sale

As of May 1, 2022, the Company classified certain assets and liabilities as held for sale in the Balance Sheets. See Note 2, Divestiture, and Note 17, Subsequent Event, for additional information.

Accounting Guidance Issued, but not yet Adopted ~~Accounting Guidance~~as of May 1, 2022

~~In December 2019,~~0In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2019-12, Simplifying the~~ 2021-08, “Business Combinations (Topic 805)—Accounting for ~~Income Taxes,~~Contract Assets and Contract Liabilities from Contracts with Customers,” which ~~modifies~~improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistencies related to recognition of an acquired contract liability, and to payment terms and their effect on subsequent revenue recognized by the acquirer. Among other changes, this ASU requires that an acquirer account for acquired revenue contracts in accordance with Accounting Standards Codification ("ASC") ~~740~~606, "Revenue from Contracts with Customers," as if it had originated the contracts. If the acquirer is unable to ~~simplify~~assess or rely on how the ~~accounting~~acquiree applied ASC 606, the acquirer should consider the terms of the acquired contracts as of the contract inception or contract modification date in applying ASC 606 to determine what should be recorded at the acquisition date. The amendments also provide certain practical expedients for ~~income taxes. This guidance impacts the accounting for hybrid tax regimes, the tax basis step-up in goodwill obtained~~acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a ~~transaction that is not a~~ business combination, separate financial statements of legal entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, ownership changes in investments from a subsidiary to an equity method investment and vice versa, interim period accounting for enacted changes in tax law and the year-to-date loss limitation in interim period tax accounting. Thiscombination. The guidance is effective for fiscal years beginning after December 15, ~~2020, and interim periods within this those fiscal years,~~2022, with early adoption permitted. The Company ~~adopted this guidance in~~does not expect the ~~first quarter of fiscal year 2022. Adoption~~adoption of this guidance ~~did not~~to have a material impact on ~~the Company's~~its consolidated financial statements.

Note 2: Divestiture

The Company determined that its high reliability discrete diodes and assemblies business (the “Disposal Group”) met the held for sale criteria as of May 1, 2022 and, as a result, related assets for this business were classified as "Assets held for sale" and related liabilities for this business were classified as "Liabilities held for sale" in the Balance Sheets as of May 1, 2022. The Company reclassified $0.8 million of goodwill to assets held for sale based on the relative fair value of the Disposal Group and the portion of the Wireless and Sensing reporting unit that will be retained. The estimated fair value of the Disposal Group less estimated costs to sell exceeded its carrying amount as of May 1, 2022. As the sale of the Disposal Group is not considered a strategic shift that will have a major effect on the Company’s operations or financial results, it is not reported as discontinued operations.

The following table summarizes the Company's assets and liabilities held for sale by major class:


	May 1, 2022
(in thousands)
Assets:
Inventories	$	6,390
Property, plant and equipment, net	1,182
Goodwill	835
Other	658
Total assets held for sale	$	9,065

Liabilities:
Accounts payable	$	483
Accrued liabilities	759
Total liabilities held for sale	$	1,242

On May 3, 2022, the Company completed the divestiture of the Disposal Group. See Note 17, Subsequent Event, for additional information.

Note 2:3: Earnings per Share

The computation of basic and diluted earnings per share was as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
(in thousands, except per share data)	(in thousands, except per share data)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(in thousands, except per share data)	May 1, 2022		May 2, 2021
Net income attributable to common stockholders	Net income attributable to common stockholders	$	32,933	$	16,125	$	56,433	$	25,760	Net income attributable to common stockholders	$	38,049	$	23,500

Weighted-average shares outstanding–basic	Weighted-average shares outstanding–basic	64,721		65,084		64,905		65,337		Weighted-average shares outstanding–basic	63,950		65,089
Dilutive effect of share-based compensation	Dilutive effect of share-based compensation	863		920		944		762		Dilutive effect of share-based compensation	603		1,021
Weighted-average shares outstanding–diluted	Weighted-average shares outstanding–diluted	65,584		66,004		65,849		66,099		Weighted-average shares outstanding–diluted	64,553		66,110

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.51	$	0.25	$	0.87	$	0.39	Basic	$	0.59	$	0.36
Diluted	Diluted	$	0.50	$	0.24	$	0.86	$	0.39	Diluted	$	0.59	$	0.36

Anti-dilutive shares not included in the above calculations	Anti-dilutive shares not included in the above calculations	4		201		—		306		Anti-dilutive shares not included in the above calculations	64		—

Diluted earnings per share incorporates the incremental shares issuable, calculated using the treasury stock method, upon the assumed exercise of non-qualified stock options and the vesting of restricted stock units and market-condition restricted stock unit awards if certain conditions have been met, but excludes such incremental shares that would have an anti-dilutive effect.

Note 3:4: Share-Based Compensation

Financial Statement Effects and Presentation

Pre-tax share-based compensation was included in the Statements of Income as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Cost of sales	Cost of sales	$	651	$	550	$	1,369	$	1,080	Cost of sales	$	775	$	718
Selling, general and administrative	Selling, general and administrative	7,098		9,501		14,457		15,460		Selling, general and administrative	6,132		7,359
Product development and engineering	Product development and engineering	3,768		3,135		7,530		6,025		Product development and engineering	3,986		3,762
Total share-based compensation	Total share-based compensation	$	11,517	$	13,186	$	23,356	$	22,565	Total share-based compensation	$	10,893	$	11,839

Restricted Stock Units, Employees

The Company grants restricted stock units to certain employees, which are expected to be settled with shares of the Company's common stock. The grant date for these awards is equal to the measurement date. These awards are valued as of the measurement date, based on the fair value of the Company's common stock at the grant date, and recognized as share-based compensation expense over the requisite vesting period (typically 4 years). In the ~~six~~three months ended ~~August~~May 1, ~~2021,~~2022, the Company granted ~~182,037~~166,023 restricted stock units to employees.

~~Restricted Stock Units, Non-Employee Directors~~

The Company maintains a compensation program pursuant to which restricted stock units are granted to the Company’s directors that are not employed by the Company or any of its subsidiaries. Under the Company's director compensation program, a portion of the restricted stock units granted under the program will be settled in cash and a portion will be settled in shares of the Company's common stock. Restricted stock units awarded under the program are scheduled to vest on the earlier of (i) one year after the grant date or (ii) the day immediately preceding the Company's annual meeting of stockholders in the year following the grant. The portion of a restricted stock unit award under the program that is to be settled in cash will, subject to vesting, be settled when the director who received the award separates from the board of directors. The portion of a restricted stock unit award under the program that is to be settled in shares of the Company's common stock will, subject to vesting, be settled promptly following vesting. In the six months ended August 1, 2021, the Company granted to the non-employee directors 11,898 restricted stock units that settle in cash and 11,898 restricted stock units that settle in shares.

Total Stockholder Return ("TSR") Market-Condition Restricted Stock Units

The Company grants TSR market-condition restricted stock units (the "TSR Awards") to certain executives of the Company. The TSR Awards have a pre-defined market-condition, which determines the number of shares that ultimately vest, as well as a service condition. The TSR Awards are valued as of the grant date using a Monte Carlo simulation, which takes into consideration the possible outcomes pertaining to the TSR market condition and expense is recognized on a ~~straight line~~straight-line basis over the ~~vesting~~requisite service periods and is adjusted for any actual forfeitures.

In the ~~six~~three months ended ~~August~~May 1, ~~2021,~~2022, the Company granted ~~81,688~~125,399 TSR Awards, which are accounted for as equity awards. The market condition is determined based upon the Company’s TSR benchmarked against the TSR of the S&P SPDR Semiconductor ETF (NYSE:XSD) over one, two and three year periods (one-third of the awards vesting each performance period). Generally, the fiscal year ~~2022~~2023 TSR Award recipients must be employed for the entire performance period and be an active employee at the time of vesting of the awards. The grant-date fair value per unit of the TSR Awards granted in the ~~six~~three months ended ~~August~~May 1, ~~2021~~2022 for each one, two and three year performance period was ~~$67.41, $77.99~~$57.92, $68.94 and ~~$84.17,~~$75.69, respectively.

~~Market-Condition Restricted Stock Units~~

In the six months ended August 1, 2021, the Company granted an additional 54,928 restricted stock units with a different market condition. These additional awards are eligible to vest during the period commencing March 9, 2021, and ending May 5, 2024 (the "Performance Period") as follows: the restricted stock units covered by the award will vest if, during any consecutive 30 trading day period that commences and ends during the Performance Period, the average per-share closing price of the Company’s common stock equals or exceeds $95.00. The grant-date fair value per unit of the awards granted in the six months ended August 1, 2021 was $49.55.

Note 4:5: Available-for-sale securities

The following table summarizes the values of the Company’s available-for-sale securities:


		August 1, 2021						January 31, 2021							May 1, 2022						January 30, 2022
(in thousands)	(in thousands)	Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)		Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)		(in thousands)	Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)		Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)
Convertible debt	Convertible debt	$	11,655	$	13,436	$	(1,781)	$	11,989	$	13,244	$	(1,255)	Convertible debt	$	13,130	$	14,683	$	(1,553)	$	12,872	$	14,401	$	(1,529)
Total available-for-sale securities	Total available-for-sale securities	$	11,655	$	13,436	$	(1,781)	$	11,989	$	13,244	$	(1,255)	Total available-for-sale securities	$	13,130	$	14,683	$	(1,553)	$	12,872	$	14,401	$	(1,529)

The following table summarizes the maturities of the Company’s available-for-sale securities:


		August 1, 2021				May 1, 2022
(in thousands)	(in thousands)	Fair Value		Amortized Cost			(in thousands)	Fair Value		Amortized Cost
Within 1 year	Within 1 year	$	11,299	$	12,593		Within 1 year	$	11,544	$	12,366
After 1 year through 5 years	After 1 year through 5 years	356		843			After 1 year through 5 years	1,586		2,317
Total available-for-sale securities	Total available-for-sale securities	$	11,655	$	13,436		Total available-for-sale securities	$	13,130	$	14,683

The Company's available-for-sale securities consist of investments in convertible debt instruments issued by privately-held companies. The available-for-sale securities with maturities within one year were included in "Other current assets" and maturities greater than one year were included in "Other assets" in the Balance Sheets.

Note 5:6: Fair Value Measurements

The following fair value hierarchy is applied for disclosure of the inputs used to measure fair value and prioritizes the inputs into three levels as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the assets or liabilities, either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s own assumptions, requiring significant management judgment or estimation.

Instruments Measured at Fair Value on a Recurring Basis

The fair values of financial assets and liabilities measured and recorded at fair value on a recurring basis were presented in the Balance Sheets as follows:


		August 1, 2021								January 31, 2021									May 1, 2022								January 30, 2022
(in thousands)	(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)		(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Financial assets:	Financial assets:																	Financial assets:
Total return swap contracts		$	154	$	—	$	154	$	—	$	—	$	—	$	—	$	—
Interest rate swap agreement																		Interest rate swap agreement	$	1,983	$	—	$	1,983	$	—	$	229	$	—	$	229	$	—

Convertible debt	Convertible debt	11,655		—		—		11,655		11,989		—		—		11,989		Convertible debt	13,130		—		—		13,130		12,872		—		—		12,872

Total financial assets	Total financial assets	$	11,809	$	—	$	154	$	11,655	$	11,989	$	—	$	—	$	11,989	Total financial assets	$	15,113	$	—	$	1,983	$	13,130	$	13,101	$	—	$	229	$	12,872

Financial liabilities:	Financial liabilities:																	Financial liabilities:

Interest rate swap agreement		$	1,318	$	—	$	1,318	$	—	$	1,782	$	—	$	1,782	$	—

Total return swap contracts	Total return swap contracts	—		—		—		—		167		—		167		—		Total return swap contracts	$	317	$	—	$	317	$	—	$	257	$	—	$	257	$	—
Total financial liabilities	Total financial liabilities	$	1,318	$	—	$	1,318	$	—	$	1,949	$	—	$	1,949	$	—	Total financial liabilities	$	317	$	—	$	317	$	—	$	257	$	—	$	257	$	—

During the ~~six~~three months ended ~~August~~May 1, ~~2021,~~2022, the Company had no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3. As of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021,~~30, 2022, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.

The convertible debt investments are valued utilizing a combination of estimates that are based on the estimated discounted cash flows associated with the debt and the fair value of the equity into which the debt may be converted, all of which are Level 3 inputs.

The following table presents a reconciliation of the changes in the convertible debt investments in the ~~six~~three months ended ~~August~~May 1, ~~2021:~~2022:


(in thousands)
Balance at January ~~31, 2021~~30, 2022	$	~~11,989~~12,872
~~Additions~~	~~450~~

Increase in credit loss reserve	~~(714)~~(24)
Interest accrued	~~556~~282
~~Conversion to equity~~	~~(626)~~
Balance at ~~August~~May 1, ~~2021~~2022	$	~~11,655~~13,130

The interest rate swap agreement is measured at fair value using readily available interest rate curves (Level 2 inputs). The fair value of the agreement is determined by comparing, for each settlement, the contract rate to the forward rate and discounting to the present value. Contracts in a gain position are recorded in "Other current assets" and "Other assets" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" and "Other long term liabilities" in the Balance Sheets. See Note 1516, Derivatives and Hedging Activities, for further discussion of the Company’s derivative instruments.

The total return swap contracts are measured at fair value using quoted prices of the underlying investments (Level 2 inputs). The fair values of the total return swap contracts are recognized in the Balance Sheets in "Accrued Liabilities" if the instruments are in a loss position and in "Other Current Assets" if the instruments are in a gain position. See Note 1516, Derivatives and Hedging Activities, for further discussion of the Company's derivative instruments.

Instruments Not Recorded at Fair Value on a Recurring Basis

Some of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents including money market deposits, net receivables, certain other assets, accounts payable, accrued

expenses, accrued personnel costs, and other current liabilities. The Company’s long-term debt is recorded at cost, which approximates fair value as the long-term debt bears interest at a floating rate.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

The Company reduces the carrying amounts of its goodwill, intangible assets, long-lived assets and non-marketable equity securities to fair value when held for sale or determined to be impaired.

Investment Impairments and Credit Loss Reserves

The total credit loss reserve for the Company's held-to-maturity debt securities and available-for-sale debt securities was ~~$4.1 million and $3.4~~$4.5 million as of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021, respectively.~~30, 2022. During the three ~~and six~~ months ended ~~August 1,~~May 2, 2021, the Company increased its expected credit loss reserves by ~~$0.5~~$0.2 million ~~and $0.7 million, respectively,~~ for its available-for-sale debt securities. ~~Upon the adoption of ASU 2016-13 in the first quarter of fiscal year 2021, the Company recorded expected credit~~Credit loss reserves ~~of $0.4 million~~ related to ~~its held-to-maturity~~the Company’s available-for-sale debt ~~securities. During the three~~securities and ~~six months ended July 26, 2020, the Company increased its expected credit loss reserves by zero and $2.4 million, respectively, for its~~ held-to-maturity debt securities with maturities within one year were included in “Other current assets” and ~~available-for-sale debt securities. These increases~~with maturities greater than one year were ~~in-part, due to~~included in “Other assets” in the impact of the COVID-19 pandemic on early-stage development companies. During the three and six months ended July 26, 2020, the Company recorded $1.7 million and $2.9 million, respectively, of impairments on its non-marketable equity investments.Balance Sheets.

Note 6:7: Inventories

Inventories, consisting of material, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:


(in thousands)	(in thousands)	August 1, 2021		January 31, 2021		(in thousands)	May 1, 2022		January 30, 2022
Raw materials	Raw materials	$	3,406	$	2,936	Raw materials	$	2,616	$	4,304
Work in progress	Work in progress	71,454		59,523		Work in progress	77,021		85,445
Finished goods	Finished goods	28,171		25,035		Finished goods	27,264		24,254
Inventories		$	103,031	$	87,494
Total inventories						Total inventories	$	106,901	$	114,003

As of May 1, 2022, inventories excluded amounts classified as held for sale. See Note 2, Divestiture, for additional information.

Note 7:8: Goodwill and Intangible Assets

Goodwill

The carrying amounts of goodwill by applicable reporting unit were as follows:

(in thousands) Signal Integrity Wireless and Sensing Protection Total
Balance at January 31, 2021 $ 274,085 $ 72,128 $ 4,928 $ 351,141
Balance at August 1, 2021 $ 274,085 $ 72,128 $ 4,928 $ 351,141


(in thousands)	Signal Integrity		Wireless and Sensing		Protection		Total
Balance at January 30, 2022	$	274,085	$	72,128	$	4,928	$	351,141
Reclassifications to assets held for sale	—		(835)		—		(835)
Balance at May 1, 2022	$	274,085	$	71,293	$	4,928	$	350,306

Goodwill is not amortized, but is tested for impairment at the reporting unit level using either a qualitative or quantitative assessment on an annual basis during the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. ~~The recoverability~~Impairment of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. As of ~~August~~May 1, ~~2021,~~2022, there was 0no indication of impairment of the Company's goodwill ~~balances.~~balances and goodwill excluded amounts reclassified to assets held for sale. See Note 2, Divestiture, for additional information.

Purchased Intangibles

The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and technology licenses purchased, which are amortized over their estimated useful lives:


			August 1, 2021						January 31, 2021								May 1, 2022						January 30, 2022
(in thousands, except estimated useful life)	(in thousands, except estimated useful life)	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		(in thousands, except estimated useful life)	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core technologies	Core technologies	3-8 years	$	29,300	$	(20,150)	$	9,150	$	29,300	$	(17,554)	$	11,746	Core technologies	6-8 years	$	26,300	$	(20,544)	$	5,756	$	26,300	$	(19,496)	$	6,804

Total finite-lived intangible assets	Total finite-lived intangible assets		$	29,300	$	(20,150)	$	9,150	$	29,300	$	(17,554)	$	11,746	Total finite-lived intangible assets		$	26,300	$	(20,544)	$	5,756	$	26,300	$	(19,496)	$	6,804

Amortization expense of finite-lived intangible assets recorded in the Statements of Income for each period was as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Core technologies	Core technologies	$	1,298	$	1,798	$	2,596	$	4,271	Core technologies	$	1,048	$	1,298
Customer relationships		—		222		—		589

Total amortization expense	Total amortization expense	$	1,298	$	2,020	$	2,596	$	4,860	Total amortization expense	$	1,048	$	1,298

Future amortization expense of finite-lived intangible assets is expected as follows:

~~(in thousands)~~

~~Fiscal Year Ending:~~

~~Fiscal year 2022 (remaining six months)~~

~~2,346~~

~~Fiscal year 2023~~

~~4,002~~

~~Fiscal year 2024~~

~~1,676~~

~~Fiscal year 2025~~

~~288~~

~~Fiscal year 2026~~

~~288~~

~~Thereafter~~

~~550~~

~~Total expected amortization expense~~

~~9,150~~


(in thousands)
Fiscal Year Ending:
2023 (remaining nine months)	$	2,954
2024	1,676
2025	288
2026	288
2027	288
Thereafter	262
Total expected amortization expense	$	5,756

Note 8:9: Long-Term Debt

Long-term debt and the current period interest rates were as follows:


(in thousands, except percentages)	(in thousands, except percentages)	August 1, 2021			January 31, 2021			(in thousands, except percentages)	May 1, 2022			January 30, 2022
Revolving loans	Revolving loans	$	177,000		$	181,000		Revolving loans	$	183,000		$	173,000

Debt issuance costs	Debt issuance costs	(1,564)			(1,805)			Debt issuance costs	(1,203)			(1,324)
Total long-term debt, net of debt issuance costs	Total long-term debt, net of debt issuance costs	$	175,436		$	179,195		Total long-term debt, net of debt issuance costs	$	181,797		$	171,676
Effective interest rate (1)	Effective interest rate (1)	1.88		%	1.88		%	Effective interest rate (1)	1.93		%	1.90		%

(1) The revolving loans bear interest at a variable rate based on LIBOR or a Base Rate, at the Company’s option, plus an applicable margin that varies based on the Company’s consolidated leverage ratio. In the first quarter of fiscal year 2021, the Company entered into ana three-year interest rate swap agreement that fixed the interest on the first $150.0 million of debt outstanding under the revolving loans at 1.9775%. As of ~~August~~May 1, ~~2021,~~2022, the effective interest rate iswas a weighted-average rate that ~~represents~~represented (a) interest on the first $150.0 million of the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and (b) interest on the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was ~~0.11%~~0.49% as of ~~August~~May 1, ~~2021,~~2022, plus a margin of 1.25% (total variable rate of ~~1.36%~~1.74%). As of January ~~31, 2021,~~30, 2022, the effective interest rate iswas a weighted-average rate that ~~represents~~represented (a) interest on the first $150.0 million of the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and (b) interest on the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was ~~0.14%~~0.11% as of January ~~31, 2021,~~30, 2022, plus a margin of 1.25% (total variable rate of ~~1.39%~~1.36%).

On November 7, 2019, the Company, with certain of its domestic subsidiaries as guarantors, entered into an amended and restated credit agreement with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit issuer. The borrowing capacity of the revolving loans under the senior secured first lien credit facility (the "Credit Facility") is $600.0 million and matures on November 7, 2024. As of ~~August~~May 1, ~~2021,~~2022, the Company had ~~$177.0~~$183.0 million outstanding under its Credit Facility ~~which had $423.0~~and $417.0 million of undrawn borrowing capacity, and the Company was in compliance with the covenants required under the Credit Facility.

On August 11, 2021, the Company entered into an amendment to the Credit Agreement in order to, among other things, (i) provide for contractual fallback language for LIBOR replacement to reflect the Alternative Reference Rates Committee hardwired approach and (ii) incorporate certain provisions that clarify the rights of the administrative agent to recover from lenders or other secured parties erroneous payments made to such lenders or secured parties.

Interest expense was comprised of the following components for the periods presented:


		Three Months Ended				Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Contractual interest (1)	Contractual interest (1)	$	1,065	$	1,131	$	2,143	$	2,569	Contractual interest (1)	$	1,076	$	1,078
Amortization of debt discount and issuance costs	Amortization of debt discount and issuance costs	120		121		241		242		Amortization of debt discount and issuance costs	121		121
Total interest expense	Total interest expense	$	1,185	$	1,252	$	2,384	$	2,811	Total interest expense	$	1,197	$	1,199

(1) Contractual interest represents the interest on the Company's outstanding debt after giving effect to the interest rate swap agreement.

As of ~~August~~May 1, ~~2021,~~2022, there were no amounts outstanding under the letters of credit, swing line loans and alternative currency sub-facilities.

Note 9:10: Income Taxes

The Company’s effective tax rate differs from the statutory federal income tax rate of 21% primarily due to the regional mix of income, ~~withholding taxes on certain foreign earnings, excess tax benefits from share-based compensation~~impact of global intangible low-taxed income ("GILTI") and research and development ("R&D") tax credits. The Tax Cuts and Jobs Act requires R&D costs incurred for tax years beginning after December 31, 2021 to be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. The Company has elected to treat GILTI as a period cost and the additional capitalization of R&D costs within GILTI increases the Company's provision for income taxes.

The Company uses a two-step approach to recognize and measure uncertain tax positions ("UTP"). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before the federal impact of state items) is as follows:


(in thousands)
Balance at January ~~31, 2021~~30, 2022	$	~~26,850~~27,051
Additions/(decreases) based on tax positions related to the current fiscal year	~~272~~181
Additions/(decreases) based on tax positions related to the prior fiscal years	~~(968)~~(34)

Balance at ~~August~~May 1, ~~2021~~2022	$	~~26,154~~27,198

Included in the balance of gross unrecognized tax benefits at ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021~~30, 2022 are ~~$8.9~~$9.4 million and ~~$9.7~~$9.3 million, respectively, of net tax benefits (after the federal impact of state items), that, if recognized, would impact the effective tax rate, prior to consideration of any required valuation allowance.

The liability for UTP is reflected in the Balance Sheets as follows:


(in thousands)	(in thousands)	August 1, 2021		January 31, 2021		(in thousands)	May 1, 2022		January 30, 2022
Deferred tax assets - non-current	Deferred tax assets - non-current	$	15,865	$	15,770	Deferred tax assets - non-current	$	16,440	$	16,346
Other long-term liabilities	Other long-term liabilities	8,934		9,731		Other long-term liabilities	9,384		9,335
Total accrued taxes	Total accrued taxes	$	24,799	$	25,501	Total accrued taxes	$	25,824	$	25,681

The Company’s policy is to include net interest and penalties related to unrecognized tax benefits in the "Provision for income taxes" in the Statements of Income.

Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the United States ("U.S.") Internal Revenue Service except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns in the U.S., the Company is generally not subject to income tax examinations for calendar years prior to 2012 (the Company’s fiscal year 2013). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year ~~2019.~~2020. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

The Company’s regional income (loss) from continuing operations before taxes and equity in net gains of equity method investments was as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Domestic	Domestic	$	(6,623)	$	(10,125)	$	(12,108)	$	(17,012)	Domestic	$	(4,782)	$	(5,484)
Foreign	Foreign	41,843		25,968		73,946		43,857		Foreign	50,875		32,102
Total	Total	$	35,220	$	15,843	$	61,838	$	26,845	Total	$	46,093	$	26,618

Note ~~10:~~11: Leases

The Company has operating leases for real estate, vehicles, and office ~~equipment.~~equipment, which are accounted for in accordance with ASC 842, "Leases." Real estate leases are used to secure office space for the Company's administrative, engineering, production support and manufacturing activities. The Company's leases have remaining lease terms of up to approximately 10ten years, some of which include options to extend the leases for up to 5five years, and some of which include options to terminate the leases within 1one year.

The components of lease expense were as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Operating lease cost	Operating lease cost	$	1,487	$	1,178	$	2,824	$	2,355	Operating lease cost	$	1,446	$	1,337
Short-term lease cost	Short-term lease cost	258		—		503		—		Short-term lease cost	271		244
Sublease income	Sublease income	(54)		(34)		(75)		(67)		Sublease income	(35)		(20)
Total lease cost	Total lease cost	$	1,691	$	1,144	$	3,252	$	2,288	Total lease cost	$	1,682	$	1,561

Supplemental cash flow information related to leases was as follows:


		Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities	$	3,237	$	2,283	Cash paid for amounts included in the measurement of lease liabilities	$	1,709	$	1,731
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	7,376	$	8,298	Right-of-use assets obtained in exchange for new operating lease liabilities	$	465	$	33



	~~August~~May 1, ~~2021~~2022
Weighted-average remaining lease term–operating leases (in years)	~~5.98~~5.41
Weighted-average discount rate on remaining lease payments–operating leases	~~6.4~~6.3	%

Supplemental balance sheet information related to leases was as follows:


(in thousands)	(in thousands)	August 1, 2021		January 31, 2021		(in thousands)	May 1, 2022		January 30, 2022
Operating lease right-of-use assets in "Other assets"	Operating lease right-of-use assets in "Other assets"	$	21,518	$	16,337	Operating lease right-of-use assets in "Other assets"	$	19,102	$	19,777

Operating lease liabilities in "Accrued liabilities"	Operating lease liabilities in "Accrued liabilities"	$	3,585	$	3,975	Operating lease liabilities in "Accrued liabilities"	$	3,790	$	3,977
Operating lease liabilities in "Other long-term liabilities"	Operating lease liabilities in "Other long-term liabilities"	18,560		13,172		Operating lease liabilities in "Other long-term liabilities"	15,446		16,577
Total operating lease liabilities	Total operating lease liabilities	$	22,145	$	17,147	Total operating lease liabilities	$	19,236	$	20,554

Maturities of lease liabilities as of ~~August~~May 1, ~~2021~~2022 are as follows:


(in thousands)	(in thousands)			(in thousands)
Fiscal Year Ending:	Fiscal Year Ending:			Fiscal Year Ending:
2022 (remaining six months)		$	2,372
2023		4,940
2023 (remaining nine months)				2023 (remaining nine months)	$	3,644
2024	2024	4,581		2024	4,567
2025	2025	4,412		2025	4,414
2026	2026	3,502		2026	3,391
2027				2027	2,206
Thereafter	Thereafter	6,934		Thereafter	4,544
Total lease payments	Total lease payments	26,741		Total lease payments	22,766
Less: imputed interest	Less: imputed interest	(4,596)		Less: imputed interest	(3,530)
Total	Total	$	22,145	Total	$	19,236

Note ~~11:~~12: Commitments and Contingencies

In accordance with ASC 450-20, ~~Loss~~"Loss Contingencies," the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. The Company also discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if ~~such disclosure is necessary for its consolidated financial statements not to be misleading.~~material. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are ~~indeterminate;~~indeterminate, (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any.

Because the outcomes of litigation and other legal matters are inherently unpredictable, the Company’s evaluation of legal matters or proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. While the consequences of certain unresolved matters and proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on the Company’s earnings in any given reporting period. However, in the opinion of management, after consulting with legal counsel, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial statements, as a whole. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control.

As such, even though the Company intends to vigorously defend itself with respect to its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, operating results, or cash flows.

From time to time, the Company is involved in various claims, litigation, and other legal actions that are normal to the nature of its business, including with respect to intellectual property, contract, product liability, employment, and environmental matters. In the opinion of management, after consulting with legal counsel, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial statements, as a whole.

Environmental Matters

The Company vacated a former facility in Newbury Park, California in 2002, but continues to address groundwater and soil contamination at the site. The Company’s efforts to address site conditions have been at the direction of the Los Angeles Regional Water Quality Control Board (“RWQCB”). In October 2013, an order was issued including a scope of proposed additional site work, monitoring, and remediation activities. The Company has been complying with RWQCB orders and direction, and continues to implement an approved remedial action plan addressing the soil, groundwater, and soil vapor at the site.

The Company has accrued liabilities where it is probable that a loss will be incurred and the cost or amount of loss can be reasonably estimated. Based on the latest determinations by the RWQCB and the most recent actions taken pursuant to the remedial action plan, the Company estimates the range of probable loss between ~~$7.4~~$7.9 million and ~~$8.0~~$9.4 million. To date, the Company has made ~~$5.5~~$5.8 million in payments towards the remedial action plan and, as of ~~August~~May 1, ~~2021,~~2022, has a remaining accrual of ~~$1.9~~$2.1 million related to this matter. Given the uncertainties associated with environmental assessment and the remediation activities, the Company is unable to determine a best estimate within the range of loss. Therefore, the Company has recorded the minimum amount of probable loss. These estimates could change as a result of changes in planned remedial actions, further actions from the regulatory agency, remediation technology, and other factors.

Indemnification

The Company has entered into agreements with its current and former executives and directors indemnifying them against certain liabilities incurred in connection with the performance of their duties. The Company’s Certificate of Incorporation and Bylaws also contain indemnification obligations with respect to the Company’s current directors and employees.

Product Warranties

The Company’s general warranty policy provides for repair or replacement of defective parts. In some cases, a refund of the purchase price is offered. In certain instances, the Company has agreed to other or additional warranty terms, including indemnification provisions.

The product warranty accrual reflects the Company’s best estimate of probable liability under its product warranties. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical experience. Historically, warranty expense and the related accrual has been immaterial to the Company’s consolidated financial statements.

Deferred Compensation

The Company maintains a deferred compensation plan for certain officers and key executives that allows participants to defer a portion of their compensation for future distribution at various times permitted by the plan. This plan provides for a discretionary Company match up to a defined portion of the employee's deferral, with any match subject to a defined vesting ~~period.~~schedule.

The Company's liability for the deferred compensation plan is presented below:


(in thousands)	(in thousands)	August 1, 2021		January 31, 2021		(in thousands)	May 1, 2022		January 30, 2022
Accrued liabilities	Accrued liabilities	$	2,039	$	1,709	Accrued liabilities	$	1,821	$	1,966
Other long-term liabilities	Other long-term liabilities	45,046		39,299		Other long-term liabilities	41,305		43,197
Total deferred compensation liabilities under this plan	Total deferred compensation liabilities under this plan	$	47,085	$	41,008	Total deferred compensation liabilities under this plan	$	43,126	$	45,163

The Company has purchased whole life insurance on the lives of certain current deferred compensation plan participants. This ~~Company-owned~~corporate-owned life insurance is held in a grantor trust and is intended to cover a majority of the Company's costs of the deferred compensation plan. The cash surrender value of the ~~Company-owned~~corporate-owned life insurance was ~~$30.8~~$33.7 million and ~~$27.6~~$35.2 million as of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021,~~30, 2022, respectively, and is included in "Other assets" in the Balance Sheets.

~~Earn-out Liability~~

~~Pursuant~~ The decrease in the cash surrender value of the corporate-owned life insurance as of May 1, 2022 compared to January 30, 2022 was primarily related to a $2.6 million decrease in market value and a $1.6 million reduction in cash surrender value related to a death benefit, partially offset by the ~~terms~~re-investment of ~~an amended arrangement with~~$2.7 million of proceeds from the ~~former shareholders of Cycleo SAS, which~~death benefit into the ~~Company acquired~~corporate-owned life insurance policy in ~~March 2012, earn-out payments are based on the achievement of a combination of certain sales and operating income milestones over the period of April 27, 2015~~order to ~~April 26, 2020. No payments have been made during fiscal years 2022 and 2021~~provide substantive coverage for the remaining earn-out milestone pending the outcome or resolution of a dispute between the Company and the earn-out participants. Any payment that may be made for the remaining portion of the earn-out is not expected to be material.

Company's deferred compensation liability.

Note ~~12:~~13: Concentration of Risk

The following significant customers accounted for at least 10% of the Company's net sales in one or more of the periods indicated:


		Three Months Ended				Six Months Ended					Three Months Ended
(percentage of net sales)	(percentage of net sales)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(percentage of net sales)	May 1, 2022		May 2, 2021
Trend-tek Technology Ltd. (and affiliates)										Trend-tek Technology Ltd. (and affiliates)	18	%	16	%
Frontek Technology Corporation (and affiliates)	Frontek Technology Corporation (and affiliates)	19	%	15	%	19	%	13	%	Frontek Technology Corporation (and affiliates)	15	%	19	%
Trend-tek Technology Ltd. (and affiliates)		18	%	21	%	17	%	18	%
Arrow Electronics (and affiliates)		11	%	10	%	11	%	9	%

CEAC International Limited	CEAC International Limited	11	%	12	%	10	%	12	%	CEAC International Limited	13	%	10	%

The following table shows the customers that had an outstanding receivable balance that represented at least 10% of the Company's total net receivables as of one or more of the dates indicated:


(percentage of net receivables)	(percentage of net receivables)	August 1, 2021		January 31, 2021		(percentage of net receivables)	May 1, 2022		January 30, 2022
Frontek Technology Corporation (and affiliates)	Frontek Technology Corporation (and affiliates)	20	%	10	%	Frontek Technology Corporation (and affiliates)	15	%	17	%

Trend-tek Technology Ltd (and affiliates)	Trend-tek Technology Ltd (and affiliates)	12	%	14	%	Trend-tek Technology Ltd (and affiliates)	11	%	7	%
CEAC International Limited	CEAC International Limited	11	%	14	%	CEAC International Limited	11	%	10	%

Outside Subcontractors and Suppliers

The Company relies on a limited number of third-party subcontractors and suppliers for the production of silicon wafers, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, including due to the COVID-19 pandemic or natural disasters such as an earthquake or other causes, have delayed and could in the future delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. A significant amount of the Company’s third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in the U.S., Taiwan and China. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in China, Taiwan ~~Malaysia, the Philippines, South Korea~~ and ~~Thailand.~~Malaysia.

Note ~~13:~~14: Segment Information

The Company’s Chief Executive Officer functions as the chief operating decision maker ("CODM"). The CODM makes operating decisions and assesses performance based on the Company's major product lines, which represent its operating segments. The Company has 3 operating segments—Signal Integrity, Wireless and Sensing and Protection—that ~~have similar economic characteristics and~~historically have been aggregated into 1one reportable segment identified as the "Semiconductor Products Group." In the fourth quarter of fiscal year 2022, the Company updated its forecasts and assessed the economic performance of the three operating segments and concluded that Protection is no longer expected to be economically similar to the other operating segments. This is primarily because the Company's projections indicate that the gross margin of products within Protection will not be economically similar to products within the other operating segments. Accordingly, the Company concluded that Protection should be separately reported as its own reportable segment. This decision resulted in the formation of 2 reportable segments, including the High-Performance Analog Group, which is comprised of the Signal Integrity and Wireless and Sensing operating segments, and the System Protection Group, which is comprised of the Protection operating segment. All prior year information in the tables below has been revised retrospectively to reflect the change to the Company's reportable segments.

The Company’s assets are commingled among the 3 operating segments and the CODM does not use asset information in making operating decisions or assessing performance. Therefore, the Company has not included asset information by reportable segment in the segment disclosures below.

Net sales and gross profit by segment were as follows:

Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Semiconductor Products Group $ 185,004 $ 143,660 $ 355,376 $ 276,362
Total $ 185,004 $ 143,660 $ 355,376 $ 276,362

The following table presents a reconciliation of operating income by segment to consolidated income before taxes and equity in net gains (losses) of equity method investments. Historical amounts have been adjusted to conform to the current presentation:

Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Semiconductor Products Group $ 50,152 $ 34,818 $ 91,621 $ 62,916
Operating income by segment 50,152 34,818 91,621 62,916
Items to reconcile segment operating income to consolidated income before taxes and equity in net gains (losses) of equity method investments:
Share-based compensation 11,517 13,186 23,356 22,565
Intangible amortization 1,298 2,020 2,596 4,860
Investment impairments and credit loss reserves 468 1,485 714 5,115
Changes in the fair value of contingent earn-out obligations — — — (33)
Restructuring and other reserves 16 502 16 502
Litigation cost, net of recoveries 560 105 1,100 251
Transaction and integration related 101 249 (76) 247
Interest expense 1,185 1,252 2,384 2,811
Non-operating (income) expense, net (213) 176 (307) (247)
Income before taxes and equity in net gains (losses) of equity method investments $ 35,220 $ 15,843 $ 61,838 $ 26,845


	Three Months Ended
(in thousands)	May 1, 2022		May 2, 2021
Net sales:
High-Performance Analog Group	$	146,601	$	125,202
System Protection Group	55,548		45,170
Total net sales	$	202,149	$	170,372
Gross profit:
High-Performance Analog Group	$	102,061	$	83,080
System Protection Group	29,187		22,741
Unallocated costs, including share-based compensation	(995)		(960)
Total gross profit	$	130,253	$	104,861

Information by Product Line

The Company operates exclusively in the semiconductor industry and primarily within the analog and mixed-signal sector.

The table below provides net sales activity by product line on a comparative basis:

Three Months Ended Six Months Ended
(in thousands, except percentages) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Signal Integrity $ 73,087 39 % $ 71,645 50 % $ 139,782 39 % $ 131,574 48 %
Wireless and Sensing 62,593 34 % 38,830 27 % 121,100 34 % 71,788 26 %
Protection 49,324 27 % 33,185 23 % 94,494 27 % 73,000 26 %
Total net sales $ 185,004 100 % $ 143,660 100 % $ 355,376 100 % $ 276,362 100 %


	Three Months Ended
(in thousands, except percentages)	May 1, 2022				May 2, 2021
Signal Integrity	$	79,302	40	%	$	66,695	39	%
Wireless and Sensing	67,299		33	%	58,507		34	%
Protection	55,548		27	%	45,170		27	%
Total net sales	$	202,149	100	%	$	170,372	100	%

Information by Sales Channel


(in thousands, except percentages)	(in thousands, except percentages)	Three Months Ended								Six Months Ended								(in thousands, except percentages)	Three Months Ended
		August 1, 2021				July 26, 2020				August 1, 2021				July 26, 2020					May 1, 2022				May 2, 2021
Distributor	Distributor	$	160,754	87	%	$	116,545	81	%	$	307,154	86	%	$	220,493	80	%	Distributor	$	179,033	89	%	$	146,400	86	%
Direct	Direct	24,250		13	%	27,115		19	%	48,222		14	%	55,869		20	%	Direct	23,116		11	%	23,972		14	%
Total net sales	Total net sales	$	185,004	100	%	$	143,660	100	%	$	355,376	100	%	$	276,362	100	%	Total net sales	$	202,149	100	%	$	170,372	100	%

Generally, the Company does not have long-term contracts with its distributors and most distributor agreements can be terminated by either party with short notice. For the ~~second~~first quarter of fiscal year ~~2022,~~2023, the Company's largest distributors were based in Asia.

Geographic Information

Net sales activity by geographic region was as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
(percentage of total net sales)	(percentage of total net sales)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(percentage of total net sales)	May 1, 2022		May 2, 2021
Asia-Pacific	Asia-Pacific	81	%	80	%	80	%	80	%	Asia-Pacific	76	%	78	%
North America	North America	11	%	12	%	12	%	12	%	North America	13	%	13	%
Europe	Europe	8	%	8	%	8	%	8	%	Europe	11	%	9	%
		100	%	100	%	100	%	100	%		100	%	100	%

The Company attributes sales to a country based on the ship-to address. The table below summarizes sales activity to countries that represented greater than 10% of total net sales for at least one of the periods presented:


		Three Months Ended				Six Months Ended					Three Months Ended
(percentage of total net sales)	(percentage of total net sales)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(percentage of total net sales)	May 1, 2022		May 2, 2021
China (including Hong Kong)	China (including Hong Kong)	63	%	63	%	62	%	60	%	China (including Hong Kong)	57	%	60	%
United States	United States	9	%	9	%	10	%	9	%	United States	12	%	11	%

Although a large percentage of the Company's products is shipped into the Asia-Pacific region, a significant number of the products produced by these customers and incorporating the Company's semiconductor products are then sold outside this region.

Note ~~14:~~15: Stock Repurchase Program

The Company maintains a stock repurchase program that was initially approved by its Board of Directors in March 2008. The stock repurchase program does not have an expiration date and the Company’s Board of Directors has authorized expansion of the program over the years. The following table summarizes activity under the program for the presented periods:


		Three Months Ended						Six Months Ended							Three Months Ended
		August 1, 2021			July 26, 2020			August 1, 2021			July 26, 2020				May 1, 2022			May 2, 2021
(in thousands, except number of shares)	(in thousands, except number of shares)	Shares	Amount Paid		Shares	Amount Paid		Shares	Price Paid		Shares	Price Paid		(in thousands, except number of shares)	Shares	Amount Paid		Shares	Amount Paid
Shares repurchased under the stock repurchase program	Shares repurchased under the stock repurchase program	639,519	$	42,000	232,871	$	12,387	1,000,461	$	67,000	1,087,913	$	42,387	Shares repurchased under the stock repurchase program	762,093	$	50,000	360,942	$	25,000

On March 11, 2021, the Company's Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. As of ~~August~~May 1, ~~2021,~~2022, the Company had repurchased ~~$476.2~~$589.0 million in shares of its common stock under the program since inception and the remaining authorization under the program was ~~$322.2~~$209.4 million. Under the program, the Company may repurchase its common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. The Company’s repurchases may be made through Rule 10b5-1 and/or Rule 10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions. The Company intends to fund repurchases under the program from cash on ~~hand.~~hand and borrowings on its Credit Facility. The Company has no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.

Note ~~15:~~16: Derivatives and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions and principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company, on a routine basis and in the normal course of business, experiences expenses denominated in Swiss Franc ("CHF"), Canadian Dollar ("CAD") and Great British Pound ("GBP"). Such expenses expose the Company to exchange rate fluctuations between these foreign currencies and the U.S. Dollar ("USD"). The Company occasionally uses derivative financial instruments, in the form of forward contracts, to mitigate a portion of the risk associated with adverse movements in these foreign currency exchange rates during a twelve-month window. Currency forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date. The Company’s accounting treatment for these instruments is based on whether or not the instruments are designated as a hedging instrument. As of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021,~~30, 2022, the Company had no outstanding foreign currency forward contracts.

During the first quarter of fiscal year 2021, the Company entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under the Company's Credit Facility. Interest payments on the first $150.0 million of the Company's debt outstanding under the Credit Facility are now fixed at a rate of 1.9775%, based on the Company's current leverage ratio. The interest rate swap agreement has been designated as a cash flow hedge and unrealized gains or losses, net of income tax, are recorded as a component of "Accumulated Other Comprehensive Income or Loss" in the Balance Sheets. As the various settlements are made on a monthly basis, the realized gain or loss on the settlements are recorded in "Interest expense" in the Statements of Income. The ~~realized loss on the~~ interest rate swap agreement ~~was~~resulted in a realized loss of $0.2 million ~~and $0.5 million~~ for each of the three ~~and six~~ months ended ~~August~~May 1, ~~2021, respectively. The realized loss on the interest rate swap agreement was $0.1 million~~2022 and ~~$0.1 million for the three and six months ended July 26, 2020, respectively.~~May 2, 2021.

The fair values of the Company's derivative assets and liabilities that qualify as cash flow hedges in the Balance Sheets were as follows:


		Balance as of
(in thousands)	(in thousands)	August 1, 2021		January 31, 2021		(in thousands)	May 1, 2022		January 30, 2022
Interest rate swap agreement						Interest rate swap agreement	$	1,983	$	62
Total other current assets						Total other current assets	$	1,983	$	62

Interest rate swap agreement						Interest rate swap agreement	$	—	$	167
Total other long-term assets						Total other long-term assets	$	—	$	167

Interest rate swap agreement		$	855	$	849
Total accrued liabilities		$	855	$	849

Interest rate swap agreement		$	463	$	933
Total other long-term liabilities		$	463	$	933

During the fourth quarter of fiscal year 2021, the Company entered into an economic hedge program that uses total return swap contracts to hedge the market risk associated with the unfunded portion of the Company's deferred compensation liability. The total return swap contracts generally have a duration of one month and are rebalanced and re-hedged at the end of each monthly term. While the total returns swap contracts are treated as economic hedges, the Company has not designated them as hedges for accounting purposes. The total return swap contracts are measured at fair value and recognized in the Balance Sheets in "Accrued Liabilities" if the instruments are in a loss position and in "Other Current Assets" if the instruments are in a gain position. Unrealized gains and losses, as well as realized gains and losses for settlements, on the total return swap contracts are recognized in "Selling, general and administrative expenses" in the Statements of Income. As of ~~August~~May 1, ~~2021,~~2022, the notional value of the total return swap contracts was ~~$15.8~~$5.8 million and the fair value resulted in ~~an asset balance~~a liability of ~~$0.2~~$0.3 million. As of January ~~31, 2021,~~30, 2022, the notional value of the total return swap contracts was ~~$11.9~~$7.8 million and the fair value resulted in a liability ~~balance~~ of ~~$0.2~~$0.3 million. The total return swap contracts resulted in a net loss recognized in earnings of $0.4 million for the three months ended May 1, 2022, compared to a net gain recognized in earnings ~~on the total return swap contracts was $0.6 million and $1.6~~of $1.0 million for the three ~~and six~~ months ended ~~August 1, 2021, respectively.~~May 2, 2021.

Note 17: Subsequent Event

On May 3, 2022, the Company completed the divestiture of the Disposal Group to Micross Components, Inc. for approximately $30 million in an all-cash transaction. See Note 2, Divestiture, for additional information.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following "Management’s Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our interim unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"), and the "Special Note Regarding Forward-Looking and Cautionary Statements" in this Quarterly Report.

Overview

Semtech Corporation (together with its consolidated subsidiaries, the "Company", "we", "our", or "us") designs, develops, manufactures and markets high-performance analog and mixed signal semiconductors and advanced algorithms. We ~~operate and~~ account for results in ~~one~~two reportable ~~segment through three operating segments,~~segments—the High-Performance Analog Group and the System Protection Group. The High-Performance Analog Group is comprised of our ~~product lines:~~ Signal Integrity and Wireless and Sensing ~~and Protection.~~product lines, which represent two operating segments. The System Protection Group is comprised of our Protection product line, which represents a separate operating segment.

Signal Integrity. We design, develop, manufacture and market a portfolio of optical data communications and video transport products used in a wide variety of infrastructure and industrial applications. Our comprehensive portfolio of integrated circuits ("ICs") for data centers, enterprise networks, passive optical networks ("PON"), and wireless base station optical transceivers and high-speed interfaces ranges from 100Mbps to ~~800Gbps~~400Gbps and supports key industry standards such as Fibre Channel, Infiniband, Ethernet, PON and synchronous optical networks. Our video products offer advanced solutions for next generation high-definition broadcast applications, as well as highly differentiated video-over-IP technology for professional audio video applications.

Wireless and Sensing. We design, develop, manufacture and market a portfolio of specialized radio frequency products used in a wide variety of industrial, medical and communications applications, and specialized sensing products used in industrial and consumer applications. Our wireless products, which include our LoRa® devices and wireless radio frequency technology, feature industry leading and longest range industrial, scientific and medical radio, enabling a lower total cost of ownership and increased reliability in all environments. These features make these products particularly suitable for machine to machine and Internet-of-Things ("IoT") applications. Our unique sensing technology enables proximity sensing and advanced user interface solutions for our mobile and consumer products. Our wireless and sensing products can be found in a broad range of applications in the industrial, medical, and consumer markets. We also design, develop, and market power product devices that control, alter, regulate, and condition the power within electronic systems focused on the LoRa and IoT infrastructure segment. The highest volume product types within this category are switching voltage regulators, combination switching and linear regulators, smart regulators, isolated switches, and wireless charging.

Protection. We design, develop, manufacture and market high-performance protection devices, which are often referred to as transient voltage suppressors ("TVS"). TVS devices provide protection for electronic systems where voltage spikes (called transients), such as electrostatic discharge, electrical over stress or secondary lightning surge energy, can permanently damage sensitive ICs. Our portfolio of protection solutions include filter and termination devices that are integrated with the TVS device. Our products provide robust protection while preserving signal integrity in high-speed communications, networking and video interfaces. These products also operate at very low voltage. Our protection products can be found in a broad range of applications including smart phones, LCD and organic light-emitting diode TVs and displays, set-top boxes, monitors and displays, tablets, computers, notebooks, base stations, routers, automobile and industrial ~~instruments.~~systems.

Our interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of income are referred to herein as the "Statements of Income."

Our net sales by product line were as follows:


		Three Months Ended		Six Months Ended				Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		August 1, 2021			July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Signal Integrity	Signal Integrity	$	73,087	$	71,645	$	139,782		$	131,574	Signal Integrity	$	79,302	$	66,695
Wireless and Sensing	Wireless and Sensing	62,593		38,830		121,100			71,788		Wireless and Sensing	67,299		58,507
Protection	Protection	49,324		33,185		94,494			73,000		Protection	55,548		45,170
Total	Total	$	185,004	$	143,660	$	355,376		$	276,362	Total	$	202,149	$	170,372

We design, develop and market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets.

Infrastructure: data centers, PON, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network ("LAN") and other communication infrastructure equipment.

High-End Consumer: smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment.

2728

Industrial: IoT applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, ~~military and aerospace,~~ medical, security systems, automotive, industrial and home automation and other industrial equipment.

Our end customers are primarily original equipment manufacturers that produce and sell electronics.

Recent Developments

On May 3, 2022, we completed the divestiture of our high reliability discrete diodes and assemblies business (the “Disposal Group”) to Micross Components, Inc. for approximately $30 million in an all-cash transaction. See Note 2, Divestitures, for additional information.

Impact of COVID-19 and Macroeconomic Conditions

The COVID-19 pandemic has significantly affected health and economic conditions throughout the United States ("U.S.") and the rest of the world including Asia, where a significant percentage of our customers, suppliers, third party foundries and subcontractors are located. As a result of the pandemic, certain of our facilities and the third-party foundries and assembly and test contractors to which we outsource our manufacturing functions, have had to periodically reduce or suspend operations. The disruption experienced during such closures has resulted in reduced production of our products, delays for delivery of our products to our customers, and reduced ability to receive supplies, which have had and may continue to have, individually and in the aggregate, an adverse effect on our results.

Currently, customer demand remains strong and supply tight, with many of our suppliers running at or near capacity and our customers competing for ~~the~~ limited ~~supply.~~inventory. While we have increased our inventory levels to prepare for our strong backlog of orders, higher demand and to minimize the impact of potential supply shortages, we cannot provide assurance that we will have sufficient inventory if this high level of demand is sustained over the longer term. In addition, the prices to obtain raw materials and convert them into the necessary inventory have increased in certain cases, and may continue to ~~increase.~~increase, including due to current inflationary pressures. While we have been largely successful with passing on selective price increases to our customers, we cannot ~~assure you~~provide assurance that all future potential price increases can be absorbed through increased pricing to our customers.

We believe we have good visibility going into the ~~third~~second quarter of fiscal year ~~2022;~~2023; however, it is unknown how much of the increased demand reflects real end market strength. We believe the general supply chain constraints in the industry may be motivating certain customers to increase their orders and inventory levels to protect against ~~the~~ supply risk. To the extent that this cautionary purchasing is occurring, we could experience a decrease in future demand as potential excess inventory ~~chain~~ is worked down.

Factors Affecting Our Performance

Most of our sales to customers are made on the basis of individual customer purchase orders. Many customers include cancellation provisions in their purchase orders. Trends within the industry toward shorter lead-times and "just-in-time" deliveries have reduced our ability to predict future shipments. As a result, we generally rely on orders received and shipped within the same quarter for a significant portion of our sales. As a result of current macro conditions where demand is exceeding supply and we are seeing global shortages, lead times may continue to expand, resulting in fewer orders being shipped and received in the same quarter. Orders received and shipped in the ~~second~~first quarters of fiscal years 2023 and 2022 represented 1% and ~~2021 represented 3% and 24%~~18% of net sales, respectively. Sales made directly to customers during the ~~second~~first quarters of fiscal years 2023 and 2022 were 11% and ~~2021 were 13% and 19%~~14% of net sales, respectively. The remaining sales were made through independent distributors. The decline in direct sales is due to customers electing to leverage the value of distribution to better manage their supply chain.

Our business relies on foreign-based entities. Many of our third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries or territories including Taiwan and China. Foreign sales constituted approximately ~~91%~~88% and ~~91%~~89% of our net sales during the ~~second~~first quarters of fiscal years ~~2022~~2023 and ~~2021,~~2022, respectively. Approximately ~~81%~~76% and ~~80%~~78% of our sales during the ~~second~~first quarters of fiscal years ~~2022~~2023 and ~~2021,~~2022, respectively, were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe, Canada and Mexico. Doing business in foreign locations also subjects us to export restrictions and trade laws, which may limit our ability to sell to certain customers. ~~For example, the U.S. Department of Commerce expanded its restrictions on certain technology sold to or for Huawei in 2020, which adversely impacted our sales to this customer.~~

We use several metrics as indicators of future potential growth. The indicators that we believe best correlate to potential future sales growth are design wins and new product releases. There are many factors that may cause a design win or new product release not to result in sales, including a customer's decision not to go to system production, a change in a customer’s perspective regarding a product’s value or a customer’s product failing in the end market. As a result, although a design win or new product introduction is an important step towards generating future sales, it does not inevitably result in us being awarded business or receiving a purchase commitment.

Inflationary factors have not had a significant effect on our performance over the past several years. A significant increase in inflation would affect our future performance if we were unable to pass these higher costs on to our customers.

Results of Operations

The following table sets forth, for the periods indicated, our interim unaudited condensed consolidated statements of income expressed as a percentage of net sales.


		Three Months Ended				Six Months Ended					Three Months Ended
		August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020			May 1, 2022		May 2, 2021
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%
Cost of sales	Cost of sales	37.6	%	38.6	%	38.0	%	38.8	%	Cost of sales	35.6	%	38.5	%
Gross profit	Gross profit	62.4	%	61.4	%	62.0	%	61.2	%	Gross profit	64.4	%	61.5	%
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Selling, general and administrative	Selling, general and administrative	22.7	%	26.6	%	22.7	%	26.4	%	Selling, general and administrative	21.5	%	22.8	%
Product development and engineering	Product development and engineering	19.2	%	20.3	%	20.3	%	20.6	%	Product development and engineering	19.2	%	21.6	%
Intangible amortization	Intangible amortization	0.7	%	1.4	%	0.7	%	1.8	%	Intangible amortization	0.5	%	0.8	%

Total operating costs and expenses	Total operating costs and expenses	42.6	%	48.4	%	43.8	%	48.7	%	Total operating costs and expenses	41.2	%	45.1	%
Operating income	Operating income	19.8	%	13.1	%	18.2	%	12.5	%	Operating income	23.3	%	16.4	%
Interest expense	Interest expense	(0.6)	%	(0.9)	%	(0.7)	%	(1.0)	%	Interest expense	(0.6)	%	(0.7)	%
Non-operating income (expense), net		0.1	%	(0.1)	%	0.1	%	0.1	%
Non-operating income, net										Non-operating income, net	0.1	%	0.1	%
Investment impairments and credit loss reserves	Investment impairments and credit loss reserves	(0.3)	%	(1.0)	%	(0.2)	%	(1.9)	%	Investment impairments and credit loss reserves	—	%	(0.1)	%
Income before taxes and equity in net gains (losses) of equity method investments		19.0	%	11.0	%	17.4	%	9.7	%
Provision (benefit) for income taxes		1.6	%	(0.3)	%	1.7	%	0.3	%
Net income before equity in net gains (losses) of equity method investments		17.4	%	11.3	%	15.7	%	9.4	%
Equity in net gains (losses) of equity method investments		0.4	%	(0.1)	%	0.2	%	(0.1)	%
Income before taxes and equity in net gains of equity method investments										Income before taxes and equity in net gains of equity method investments	22.8	%	15.6	%
Provision for income taxes										Provision for income taxes	4.0	%	1.9	%
Net income before equity in net gains of equity method investments										Net income before equity in net gains of equity method investments	18.8	%	13.7	%
Equity in net gains of equity method investments										Equity in net gains of equity method investments	—	%	—	%
Net income	Net income	17.8	%	11.2	%	15.9	%	9.3	%	Net income	18.8	%	13.8	%
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—	%	—	%	—	%	—	%	Net loss attributable to noncontrolling interest	—	%	—	%
Net income attributable to common stockholders	Net income attributable to common stockholders	17.8	%	11.2	%	15.9	%	9.3	%	Net income attributable to common stockholders	18.8	%	13.8	%
Percentages may not add precisely due to rounding.	Percentages may not add precisely due to rounding.									Percentages may not add precisely due to rounding.

Our regional mix of income (loss) ~~from continuing operations~~ before taxes and equity in net gains (losses) of equity method investments was as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		August 1, 2021		July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Domestic	Domestic	$	(6,623)	$	(10,125)	$	(12,108)	$	(17,012)	Domestic	$	(4,782)	$	(5,484)
Foreign	Foreign	41,843		25,968		73,946		43,857		Foreign	50,875		32,102
Total	Total	$	35,220	$	15,843	$	61,838	$	26,845	Total	$	46,093	$	26,618

Domestic performance ~~from continuing operations~~ includes higher levels of share-based compensation compared to foreign operations.

Comparison of the Three Months Ended ~~August~~May 1, ~~2021~~2022 and ~~July 26, 2020~~May 2, 2021

Net Sales

The following table summarizes our net sales by major end market:

Three Months Ended
(in thousands, except percentages) August 1, 2021 July 26, 2020
Infrastructure $ 67,583 37 % $ 68,129 47 %
High-End Consumer 59,212 32 % 31,706 22 %
Industrial 58,209 31 % 43,825 31 %
Total $ 185,004 100 % $ 143,660 100 %

~~NetSales~~


	Three Months Ended
(in thousands, except percentages)	May 1, 2022				May 2, 2021
Infrastructure	$	76,194	37	%	$	61,350	36	%
High-End Consumer	47,826		24	%	53,816		32	%
Industrial	78,129		39	%	55,206		32	%
Total	$	202,149	100	%	$	170,372	100	%

Net sales for the ~~second~~first quarter of fiscal year ~~2022~~2023 were ~~$185.0~~$202.1 million, an increase of ~~28.8%~~18.7% compared to ~~$143.7~~$170.4 million for

the ~~second~~first quarter of fiscal year ~~2021.~~2022. Net sales from our ~~high-end consumer~~industrial end market increased ~~$27.5~~$22.9 million versus the prior year primarily ~~driven by~~due to an approximately ~~$15~~$19 million increase in ~~our proximity sensing products.~~LoRa-enabled product sales led by an increase in pico gateways. We experienced ~~a slight decrease~~an increase of ~~$0.5~~$14.8 million in net sales from our infrastructure end market, primarily driven by ~~reduced data center demand~~ an approximately $14 million increase in PON sales. Net sales from our high-end consumer end market decreased $6.0 million primarily driven

by ~~cloud and hyperscale providers,~~an approximately $11 million decrease in our proximity sensing products, partially offset by ~~strong 10G PON sales. Our industrial end market increased $14.4 million versus the prior year primarily due to~~ an approximately $9$3 million increase in ~~LoRa-enabled~~TVS consumer product sales ~~as we gained traction in the ever-expanding range of IoT applications.~~including wearables, mobile computers and smartphones.

Based on booking trends and our backlog entering the quarter, we estimate net sales for the ~~third~~second quarter of fiscal year ~~2022~~2023 to be between ~~$188.0~~$203.0 million and ~~$198.0~~$213.0 million. The range of guidance reflects continued uncertainty regarding macro-related events and those associated with the COVID-19 pandemic discussed above.

The following table summarizes our net sales by reportable segment:


	Three Months Ended
(in thousands, except percentages)	May 1, 2022				May 2, 2021
	Net Sales		% Net Sales		Net Sales		% Net Sales		Change
High-Performance Analog Group	$	146,601	73	%	$	125,202	73	%	17	%
System Protection Group	55,548		27	%	45,170		27	%	23	%
Total	$	202,149	100	%	$	170,372	100	%	19	%

Net sales from our High-Performance Analog Group increased $21.4 million in the first quarter of fiscal year 2023 compared to the first quarter of fiscal year 2022 primarily driven by an approximately $19 million increase in LoRa-enabled product sales led by an increase in pico gateways and an approximately $14 million increase in PON sales, partially offset by an approximately $11 million decline in proximity sensing products. Net sales from our System Protection Group increased $10.4 million in the first quarter of fiscal year 2023 compared to the first quarter of fiscal year 2022 primarily driven by an approximately $7 million increase in industrial automation and automotive sales and an approximately $3 million increase in TVS consumer product sales, including wearables, mobile computers and smartphones.

Gross Profit

The following table summarizes our gross profit and gross margin by reportable segment:


	Three Months Ended
(in thousands, except percentages)	May 1, 2022				May 2, 2021
	Gross Profit		Gross Margin		Gross Profit		Gross Margin
High-Performance Analog Group	$	102,061	69.6	%	$	83,080	66.4	%
System Protection Group	29,187		52.5	%	22,741		50.3	%
Unallocated costs, including share-based compensation	(995)				(960)
Total	$	130,253	64.4	%	$	104,861	61.5	%

In the first quarter of fiscal year 2023, gross profit increased to $130.3 million from $104.9 million in the first quarter of fiscal year 2022 as a result of higher sales. This increase included a $19.0 million increase from our High-Performance Analog Group and a $6.4 million increase from our System Protection Group, both of which experienced higher demand and implemented price increases to offset higher manufacturing costs during the first quarter of fiscal year 2023.

Our gross margin was 64.4% in the first quarter of fiscal year 2023, compared to 61.5% in the first quarter of fiscal year 2022. Gross margin in our High-Performance Analog Group was 69.6% in the first quarter of fiscal year 2023, compared to 66.4% in the first quarter of fiscal year 2022, reflecting higher margins in 10G PON and 2.5G PON, as well as a favorable product mix related to LoRa-enabled products. Gross margin in our System Protection Group was 52.5% in the first quarter of fiscal year 2023, compared to 50.3% in the first quarter of fiscal year 2022, reflecting a more favorable industrial automation and automotive product mix.

The majority of our manufacturing is outsourced, resulting in relatively low fixed manufacturing costs and variable costs that highly correlate with volume. For the second quarter of fiscal year 2022, gross profit increased to $115.4 million from $88.3 million for the second quarter of fiscal year 2021 as a result of higher sales. Gross margins were 62.4% for the second quarter of fiscal year 2022 compared to 61.4% for the second quarter of fiscal year 2021, reflecting a more favorable product mix. For the third quarter of fiscal year 2022,2023, we expect our gross margins to be in the range of ~~62.4%~~64.1% to ~~63.4%~~65.5%.

Despite the capacity constraints within the industry, we expect overall gross profit for the second quarter of fiscal year 2023 to benefit from continued revenue growth. We have increased our inventory levels to try to meet the strong backlog of orders and higher demand, as well as to minimize the impact of potential supply shortages.

Operating Costs and Expenses


		Three Months Ended								Change			Three Months Ended								Change
(in thousands, except percentages)	(in thousands, except percentages)	August 1, 2021				July 26, 2020						(in thousands, except percentages)	May 1, 2022				May 2, 2021
Selling, general and administrative	Selling, general and administrative	$	41,977	53	%	$	38,255	55	%	11	%	Selling, general and administrative	$	43,364	52	%	$	38,804	50	%	12	%
Product development and engineering	Product development and engineering	35,497		45	%	29,220		42	%	27	%	Product development and engineering	38,789		47	%	36,790		48	%	5	%
Intangible amortization	Intangible amortization	1,298		2	%	2,020		3	%	(47)	%	Intangible amortization	1,048		1	%	1,298		2	%	(19)	%

Total operating costs and expenses	Total operating costs and expenses	$	78,772	100	%	$	69,495	100	%	16	%	Total operating costs and expenses	$	83,201	100	%	$	76,892	100	%	8	%

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased ~~$3.7~~$4.6 million in the ~~second~~first quarter of fiscal year 2023 compared to the first quarter of fiscal year 2022 ~~compared to the second quarter of fiscal year 2021~~ primarily as a result of ~~an approximately $3~~a $1.8 million increase in ~~staffing-related~~performance-based compensation, which is comprised of bonus and share-based compensation, a $0.7 million increase in transaction costs including ~~performance-based compensation.~~costs related to the divestiture of our high reliability discrete diodes and assemblies business in May 2022, a $0.5 million increase in depreciation expense and a $0.5 million increase in our environmental reserve.

Product Development and Engineering Expenses

Product development and engineering expenses increased ~~$6.3~~$2.0 million in the ~~second~~first quarter of fiscal year 2023 compared to the first quarter of fiscal year 2022 ~~compared to the second quarter of fiscal year 2021~~primarily as a result of a $3.1 million increase in staffing-related costs, including performance-based compensation, partially offset by a $1.6 million decrease in operating supplies and contracted research, as well as fluctuations in the timing of development ~~activities and an approximately $3 million increase in staffing-related costs.~~activities. The levels of product development and engineering expenses reported in a fiscal period can be significantly impacted, and therefore experience period over period volatility, by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services, which are typically recorded as a reduction to product development and engineering expense.

Intangible Amortization

Intangible amortization was ~~$1.3~~$1.0 million and ~~$2.0~~$1.3 million for the ~~second~~first quarters of fiscal years ~~2022~~2023 and ~~2021,~~2022, respectively. This decrease was primarily due to certain finite-lived intangible assets associated with the acquisition of ~~Gennum Corporation that~~Trackio International AG, which became fully amortized during fiscal year ~~2021.~~2022.

Interest Expense

Interest expense, including amortization of debt discounts and issuance costs, ~~was~~remained flat at $1.2 ~~million and $1.3~~ million for the ~~second~~first quarters of fiscal years ~~2022~~2023 and ~~2021, respectively. This decrease was primarily due to lower overall debt levels.~~2022.

Investment Impairments and Credit Loss Reserves

During the ~~second~~first quarter of fiscal year 2023, investment impairments and credit loss reserves totaled a loss of $0.02 million due to adjustments to our credit loss reserve for our available-for-sale debt securities, and we did not record any impairments on our non-marketable equity investments. During the first quarter of fiscal year 2022, investment impairments and credit loss reserves totaled a loss of ~~$0.5~~$0.2 million due to adjustments to our credit loss reserve for ~~current expected credit losses. During the second quarter of fiscal year 2021, investment~~our available-for-sale debt securities, and we did not record any impairments ~~and credit loss reserves totaled a loss of $1.5 million and primarily reflected an other-than-temporary impairment of a cost method~~on our non-marketable equity ~~investment.~~investments.

Provision ~~(Benefit)~~ for Income Taxes

The effective tax rates for the ~~second~~first quarters of fiscal years 2023 and 2022 were provision rates of 17.5% and ~~2021 were a provision rate of 8.3% and a benefit rate of 2.6%~~12.0%, respectively. In the ~~second~~first quarter of fiscal year 2023, we recorded income tax expense of $8.1 million, compared to $3.2 million in the first quarter of fiscal year 2022. The increase to our effective tax rate for the first quarter of fiscal year 2023 compared to the first quarter of fiscal year 2022 ~~we recorded a provision of $3.0 million, compared~~was mainly due to an increase in global intangible low-taxed income ~~tax benefit~~("GILTI"), driven by the capitalization of ~~$0.4 million in the second quarter of fiscal year 2021.~~research and development ("R&D") costs as mandated by The Tax Cuts and Jobs Act. The effective tax ~~rate~~rates in the ~~second~~first quarters of fiscal years ~~2022~~2023 and ~~2021~~2022 differ from the statutory federal income tax rate of 21% primarily due to a regional mix of income, ~~excess tax~~

~~benefits from share-based compensation, withholding taxes on certain foreign earnings~~impact of GILTI and ~~research and development~~R&D tax credits. ~~The effective tax rate in~~We have elected to treat GILTI as a period cost and the ~~second quarter~~additional capitalization of ~~fiscal year 2021 benefited from one-time return-to-provision adjustments.~~R&D costs within GILTI increases our provision for income taxes.

As a global organization, we are subject to audit by taxing authorities in various jurisdictions. To the extent that an audit, or the closure of a statute of limitations, results in adjusting our reserves for uncertain tax positions, our effective tax rate could experience extreme volatility since any adjustment would be recorded as a discrete item in the period of adjustment.

~~Comparison of the Six Months Ended August 1, 2021 and July 26, 2020~~

~~The following table summarizes our net sales by major end market:~~

Six Months Ended
(in thousands, except percentages) August 1, 2021 July 26, 2020
Infrastructure $ 128,953 36 % $ 126,167 46 %
High-End Consumer 113,028 32 % 67,186 24 %
Industrial 113,395 32 % 83,009 30 %
Total $ 355,376 100 % $ 276,362 100 %

~~NetSales~~

Net sales for the first six months of fiscal year 2022 were $355.4 million, an increase of 28.6% compared to $276.4 million for the first six months of fiscal year 2021. During the first six months of fiscal year 2022, we experienced strong demand across all three of our end markets compared to the prior year when our net sales were adversely impacted by delays in certain shipments of our products due to COVID-19 related shutdowns, including certain subcontractors in Malaysia. Net sales from our high-end consumer end market increased $45.8 million primarily driven by an approximately $28 million increase in our proximity sensing products. Net sales from our industrial end market increased $30.4 million versus the prior year primarily due to an approximately $21 million increase in LoRa-enabled product sales, as we gained traction in the ever expanding range of IoT applications. Net sales from our infrastructure end market increased $2.8 million driven by an approximately $14 million increase in PON sales, partially offset by an approximately $9 million decline in data center demand by cloud and hyperscale providers.

~~Gross Profit~~

For the first six months of fiscal year 2022, gross profit increased to $220.3 million from $169.0 million for the first six months of fiscal year 2021 as a result of higher sales. Gross margins were 62.0% for the first six months of fiscal year 2022 compared to 61.2% for the first six months of fiscal year 2021, reflecting a more favorable product mix.

~~Operating Costs and Expenses~~

Six Months Ended Change
(in thousands, except percentages) August 1, 2021 July 26, 2020
Selling, general and administrative $ 80,781 52 % $ 72,855 54 % 11 %
Product development and engineering 72,287 46 % 56,806 42 % 27 %
Intangible amortization 2,596 2 % 4,860 4 % (47) %
Changes in the fair value of contingent earn-out obligations — — % (33) — % 100 %
Total operating costs and expenses $ 155,664 100 % $ 134,488 100 % 16 %

~~Selling, General and Administrative Expenses~~

SG&A expenses increased $7.9 million for the first six months of fiscal year 2022 compared to the first six months of fiscal year 2021 primarily as a result of an approximately $7 million increase in staffing-related costs, including performance-based compensation.

~~Product Development and Engineering Expenses~~

Product development and engineering expenses increased $15.5 million in the first six months of fiscal year 2022 compared to the first six months of fiscal year 2021 as a result of fluctuations in the timing of development activities, an approximately $5 million increase in staffing-related costs, including performance-based compensation and an approximately $5 million increase in operating supplies and contracted research. The levels of product development and engineering expenses reported in a fiscal period can be significantly impacted, and therefore experience period-over-period volatility, by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services, which are typically recorded as a reduction to product development and engineering expense.

~~Intangible Amortization~~

Intangible amortization was $2.6 million and $4.9 million for the first six months of fiscal years 2022 and 2021, respectively. This decrease was primarily due to certain finite-lived intangible assets associated with the acquisition of Gennum Corporation that became fully amortized during fiscal year 2021.

~~Changes in the Fair Value of Contingent Earn-out Obligations~~

The change in the fair value of contingent earn-out obligations for the first six months of fiscal year 2021 reflects the difference between the final earn-out targets achieved for Cycleo SAS in fiscal year 2021 and the forecasted achievement level at the end of fiscal year 2020.

~~Interest Expense~~

Interest expense, including amortization of debt discounts and issuance costs, was $2.4 million and $2.8 million for the first six months of fiscal years 2022 and 2021, respectively. This decrease was primarily due to lower overall debt levels.

~~Investment Impairments and Credit Loss Reserves~~

During the first six months of fiscal year 2022, investment impairments and credit loss reserves totaled a loss of $0.7 million due to adjustments to our reserve for current expected credit losses. During the first six months of fiscal year 2021, investment impairments and credit loss reserves totaled a loss of $5.1 million, which reflects $2.4 million of adjustments to our reserve for current expected credit losses, which were, in-part, due to the impact of the COVID-19 pandemic on early-stage development companies. The remaining loss relates to other-than-temporary impairment on three of our equity investments.

~~Provision for Income Taxes~~

The effective tax rates for the first six months of fiscal years 2022 and 2021 were a provision rate of 9.8% and a provision rate of 3.5%, respectively. In the first six months of fiscal year 2022, we recorded income tax expense of $6.2 million, compared to income tax expense of $0.9 million in the first six months of fiscal year 2021. The effective tax rate in the first six months of fiscal year 2021 benefited from one-time return-to-provision adjustments. The effective tax rate in the first six months of fiscal years 2022 and 2021 differs from the statutory federal income tax rate of 21% primarily due to regional mix of income, excess tax benefits from share-based compensation, return-to-provision adjustments, withholding taxes on certain foreign earnings and research and development tax credits.

Liquidity and Capital Resources

Our capital requirements depend on a variety of factors including, but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; sales growth or decline; potential acquisitions; the general economic environment in which we operate; and our ability to generate cash flow from operations, which are more uncertain as a result of the COVID-19 pandemic and its impact on the general economy. Our

liquidity needs during this uncertain time will depend on multiple factors, including our ability to continue operations and production of our products, given the global supply constraints, the COVID-19 pandemic's ~~effects~~effect on our customers, the availability of sufficient amounts of financing and our operating performance.

We believe that our cash on hand, cash available from future operations and available borrowing capacity under our Credit Facility (as defined below) are sufficient to meet liquidity requirements for at least the next 12 months, including funds needed for our material cash requirements. As of ~~August~~May 1, ~~2021,~~2022, we had ~~$262.7~~$275.2 million in cash and cash equivalents and ~~$423.0~~$417.0 million of undrawn capacity on our Credit ~~Facility.~~Facility (as defined below). In addition, on May 3, 2022, we sold our high reliability discrete diodes and assemblies business for approximately $30 million in an all-cash transaction. Over the longer-term, we believe our strong cash-generating business model will continue to provide adequate liquidity to fund our normal operations, which have minimal capital intensity. To the extent that we enter into acquisitions or strategic partnerships, we may be required to raise additional capital through debt issuances or equity offerings. In addition, we expect to refinance our Credit Facility ahead of its maturity in November 2024. While we have not had issues securing favorable financing historically, there is no assurance that we will be able to refinance or secure additional capital at favorable terms, or at all in the future.

A meaningful portion of our capital resources, and the liquidity they represent, are held by our foreign subsidiaries. As of ~~August~~May 1, ~~2021,~~2022, our foreign subsidiaries held approximately ~~$253.6~~$256.5 million of cash and cash equivalents, compared to ~~$182.9~~$221.9 million at January ~~31, 2021.~~30, 2022.

We expect our future cash uses will be for capital expenditures, repurchases of our common stock, debt repayment and potentially, acquisitions and other investments that support achievement of our business strategies. We expect to fund those cash requirements through our cash from operations and borrowings against our Credit Facility.

Credit Facility

On November 7, 2019, we, with certain of our domestic subsidiaries as guarantors, entered into an amended and restated credit agreement (the "Credit Agreement") with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit issuer. The Credit Agreement provides $600.0 million in borrowing capacity of revolving loans under the senior secured first lien credit facility (the "Credit Facility"). The Credit Facility matures on November 7, 2024.

In the first ~~six~~three months of fiscal ~~years~~year 2023, we borrowed $10.0 million against our Credit Facility. In the first three months of fiscal year 2022, ~~and 2021,~~ we made payments on our Credit Facility that totaled $4.0 ~~million and $8.0 million, respectively.~~million. As of ~~August~~May 1, ~~2021,~~2022, we had ~~$177.0~~$183.0 million of outstanding borrowings onagainst our Credit Facility, which had ~~$423.0~~$417.0 million of undrawn capacity.

The Credit Agreement provides that, subject to certain customary conditions, including obtaining commitments with respect thereto, we may request the establishment of one or more term loan facilities and/or increases to the revolving loans in a principal amount not to exceed (a) $300.0 million, plus (b) an unlimited amount, so long as our consolidated leverage ratio, determined on a pro forma basis, does not exceed 3.00 to 1.00. However, the lenders are not required to provide such increase upon our request.

Interest on loans made under the Credit Facility in U.S. Dollars accrues, at our option, at a rate per annum equal to (1) the Base Rate (as defined below) plus a margin ranging from 0.25% to 1.25% depending upon our consolidated leverage ratio or (2) LIBOR (determined with respect to deposits in U.S. Dollars) for an interest period to be selected by us plus a margin ranging from 1.25% to 2.25% depending upon our consolidated leverage ratio (such margin, the "Applicable Margin"). The "Base Rate" is equal to a fluctuating rate equal to the highest of (a) the prime rate of the Administrative Agent, (b) 0.50% above the federal funds effective rate published by the Federal Reserve Bank of New York and (c) one-month LIBOR (determined with respect to deposits in U.S. Dollars), plus 1.00%. Interest on loans made under the Credit Facility in Alternative Currencies (as defined in the Credit Agreement) accrues at a rate per annum equal to LIBOR (determined with respect to deposits in the applicable Alternative Currency) (other than loans made in Canadian Dollars, for which a special reference rate for Canadian Dollars applies) for an interest period to be selected by us plus the Applicable Margin.

In the first quarter of fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under our Credit Facility. Based on our current leverage ratio as of ~~August~~May 1, ~~2021,~~2022, interest payments on the first $150.0 million of debt outstanding under our Credit Facility are fixed at 1.9775%.

All of our obligations under the Credit Agreement are unconditionally guaranteed by all of our direct and indirect domestic subsidiaries, other than certain excluded subsidiaries, including, but not limited to, any domestic subsidiary the primary assets of which consist of equity or debt of non-U.S. subsidiaries, certain immaterial non-wholly-owned domestic subsidiaries and subsidiaries that are prohibited from providing a guarantee under applicable law or that would require governmental approval to provide such guarantee. The Company and the guarantors have also pledged substantially all of their assets to secure their obligations under the Credit Agreement.

No amortization is required with respect to the revolving loans and we may voluntarily prepay borrowings at any time and from time to time, without premium or penalty, other than customary "breakage costs" and fees for LIBOR-based loans.

The Credit Agreement contains customary covenants, including limitations on our ability to, among other things, incur indebtedness, create liens on assets, engage in certain fundamental corporate changes, make investments, repurchase stock, pay dividends or make similar distributions, engage in certain affiliate transactions, or enter into agreements that restrict our ability to create liens, pay dividends or make loan repayments. In addition, we must comply with financial covenants, including maintaining a maximum consolidated leverage ratio, determined as of the last day of each fiscal quarter, of 3.50 to 1.00 or less, provided that, such maximum consolidated leverage ratio may be increased to 4.00 to 1.00 for the four consecutive fiscal quarters ending on or after the date of consummation of a permitted acquisition that constitutes a "Material Acquisition" under the Credit Agreement, subject to the satisfaction of certain conditions. As of ~~August~~May 1, ~~2021,~~2022, we were in compliance with the covenants in our Credit Agreement.

The Credit Agreement also contains customary provisions pertaining to events of default. If any event of default occurs, the obligations under the Credit Agreement may be declared due and payable, terminated upon written notice to us and existing letters of credit may be required to be cash collateralized.

On August 11, 2021, we entered into an amendment to the Credit Agreement in order to, among other things, (i) provide for contractual fallback language for LIBOR replacement to reflect the Alternative Reference Rates Committee hardwired approach and (ii) incorporate certain provisions that clarify the rights of the administrative agent to recover from lenders or other secured parties erroneous payments made to such lenders or secured parties.

Capital Expenditures and Research and Development

We incur significant expenditures in order to fund the development, design and manufacture of new products. We intend to

continue to focus on those areas that have shown potential for viable and profitable market opportunities, which may require additional investment in equipment and the hiring of additional design and application engineers aimed at developing new products. Certain of these expenditures, particularly the addition of design engineers, do not generate significant payback in the short-term. We plan to finance these expenditures with cash generated by our operations and our existing cash balances.

Purchases under our Stock Repurchase Program

We currently have in effect a stock repurchase program that was initially approved by our Board of Directors in March 2008. ~~On March 11, 2021, the Company's Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million.~~ This program represents one of our principal efforts to return value to our stockholders. We repurchased ~~1,000,461~~762,093 shares of our common stock under this program in the first ~~six~~three months of fiscal year 2023 for $50.0 million. In the first three months of fiscal year 2022, ~~for $67.0 million. In the first six months of fiscal year 2021,~~ we repurchased ~~1,087,913~~360,942 shares under this program for ~~$42.4~~$25.0 million. As of ~~August~~May 1, ~~2021,~~2022, the remaining authorization under this program was ~~$322.2~~$209.4 million. We intend to fund repurchases under the program from cash on ~~hand.~~hand and borrowings on our Credit Facility. We have no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.

Working Capital

Working capital, defined as total current assets less total current liabilities, fluctuates depending on end-market demand and our effective management of certain items such as receivables, inventory and payables. In times of escalating demand, our working capital requirements may increase as we purchase additional manufacturing materials and increase production. In addition, our working capital may be affected by potential acquisitions and transactions involving our debt instruments. Although investments made to fund working capital will reduce our cash balances, these investments are necessary to support business and operating initiatives. Our working capital, excluding cash and cash equivalents, was ~~$105.8~~$109.8 million and ~~$96.3~~$94.3 million as of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021,~~30, 2022, respectively. Our working capital, including cash and cash equivalents, was ~~$368.5~~$385.0 million and ~~$365.2~~$373.9 million as of ~~August~~May 1, ~~2021~~2022 and January ~~31, 2021,~~30, 2022, respectively.

Cash Flows

One of our primary goals is to continually improve the cash flows from our existing operating activities. Additionally, we will continue to seek to maintain and improve our existing business performance with capital expenditures and, potentially, acquisitions and other investments that support achievement of our business strategies. Acquisitions may be made for either cash or stock consideration, or a combination of both.

In summary, our cash flows for each period were as follows:


		Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	August 1, 2021		July 26, 2020		(in thousands)	May 1, 2022		May 2, 2021
Net cash provided by operating activities	Net cash provided by operating activities	$	85,599	$	63,299	Net cash provided by operating activities	$	50,051	$	32,585
Net cash used in investing activities	Net cash used in investing activities	(15,867)		(20,981)		Net cash used in investing activities	(10,315)		(8,655)
Net cash used in financing activities	Net cash used in financing activities	(75,966)		(54,186)		Net cash used in financing activities	(44,153)		(34,602)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	$	(6,234)	$	(11,868)	Net decrease in cash and cash equivalents	$	(4,417)	$	(10,672)

Operating Activities

Net cash provided by operating activities is driven by net income adjusted for non-cash items and fluctuations in operating assets and liabilities.

Operating cash flows for the first ~~six~~three months of fiscal year 2023 compared to the first three months of fiscal year 2022 ~~compared to the first six months of fiscal year 2021~~ were favorably impacted by ~~a 28.6%~~an 18.7% increase in net sales and unfavorably impacted by ~~an $11.0~~a $7.1 million incremental increase in inventory spend, a $15.5 million increase in product development and engineering expenses due to higher staffing-related costs and fluctuations in the timing of development activities, and a $7.9 million increase in SG&A expenses due to higher staffing-related costs.spend.

Investing Activities

Net cash used in investing activities was primarily attributable to capital expenditures, premiums paid for corporate-owned life insurance and purchases of investments, ~~net of~~offset by proceeds from ~~sales of property, plant and equipment and proceeds from sales of investments.~~corporate-owned life insurance.

Capital expenditures were ~~$12.7~~$8.3 million for the first ~~six~~three months of fiscal year ~~2022,~~2023, compared to ~~$14.6~~$5.8 million for the first ~~six~~three months of fiscal year ~~2021.~~2022. In the first ~~six~~three months of fiscal years ~~2022~~2023 and ~~2021,~~2022, we made significant investments to update and expand our production capabilities.

In the first ~~six~~three months of fiscal year ~~2022,~~2023, we paid ~~$3.2~~$2.0 million for strategic investments, including investments in companies that are enabling the LoRa and LoRaWAN®-based ecosystem, compared to ~~$6.7~~$2.9 million of investments in the first ~~six~~three months of fiscal year ~~2021.~~2022.

In the first three months of fiscal year 2023, we received $2.7 million of proceeds from a corporate-owned life insurance death benefit, which included a $1.6 million gain. All $2.7 million of the proceeds were re-invested into our corporate-owned life insurance policy in order to provide substantive coverage for our deferred compensation liability.

Financing Activities

Net cash used in financing activities is primarily attributable to repurchases of outstanding common stock, payments related to employee share-based compensation payroll taxes and ~~principal~~ payments ~~related to~~on our ~~long-term debt,~~Credit Facility, offset by proceeds from stock option exercises.

In the first ~~six~~three months of fiscal year ~~2022,~~2023, we paid ~~$7.3~~$4.6 million for employee share-based compensation payroll taxes and received ~~$2.3~~$0.4 million in proceeds from the exercise of stock options, compared to payments of ~~$6.8~~$6.2 million for employee share-based compensation payroll taxes and proceeds of ~~$3.0~~$0.6 million from the exercise of stock options in the first ~~six~~three months of fiscal year ~~2021.~~2022. We do not directly control the timing of the exercise of stock options. Such exercises are independent decisions made by grantees and are influenced most directly by the stock price and the expiration dates of stock option awards. Such proceeds are difficult to forecast, resulting from several factors that are outside our control. We believe that such proceeds will remain a nominal source of cash in the future.

Critical Accounting Estimates

Our critical accounting estimates are disclosed in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of our Annual Report on Form 10-K. There have been no significant changes to our policies during the ~~six~~three months ended ~~August~~May 1, ~~2021.~~2022. For a discussion of recent accounting pronouncements, see Note 1 to our interim unaudited condensed consolidated financial statements.

Available Information

General information about us can be found on our website at www.semtech.com. The information on our website is for informational purposes only and should not be relied on for investment purposes. The information on our website is not incorporated by reference into this Quarterly Report and should not be considered part of this or any other report filed with the SEC.

We make available free of charge, either by direct access on our website or by a link to the SEC website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or as soon as

reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our reports filed with, or furnished to, the SEC are also available directly at the SEC’s website at www.sec.gov.

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

We are subject to a variety of market risks, including commodity risk and the risks related to foreign currency, interest rates and market performance that are discussed in Item 7A of our Annual ~~Report.~~Report on Form 10-K. Many of the factors that can have an impact on our market risk are external to us, and so we are unable to fully predict them.

We considered the historical trends in foreign currency exchange rates and determined that it is reasonably possible that adverse changes in foreign exchange rates of 10% for all currencies could be experienced in the near-term. These reasonably possible adverse changes were applied to our total monetary assets and liabilities denominated in currencies other than our functional currency as of the end of our ~~second~~first quarter of fiscal year ~~2022.~~2023. The adverse impact these changes would have had (after taking into account balance sheet hedges only) would not have had a material impact on our income before taxes.

We are subject to interest rate risk in connection with the portion of the outstanding debt under our Credit Facility that bears interest at a variable rate as of ~~August~~May 1, ~~2021.~~2022. During fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under our Credit Facility. Based on our current leverage ratio as of ~~August~~May 1, ~~2021,~~2022, interest payments on the first $150.0 million of our debt outstanding under our Credit Facility are fixed at 1.9775%. See above under "Liquidity and Capital Resources - Credit Facility" for the interest rates applicable to U.S. and Alternative Currencies borrowings under our Credit Facility in excess of $150.0 million. Based upon the amount of our outstanding indebtedness as of ~~August~~May 1, ~~2021,~~2022, a one percentage point increase in LIBOR would not have a material impact on our interest expense as only ~~$27.0~~$33.0 million of our outstanding debt balance remains subject to a floating rate.

The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, ~~has~~ announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. For U.S. dollar LIBOR, publication of the one-week and two-month LIBOR settings ~~will cease after~~ceased on December 31, 2021, and publication of the overnight and 12-month LIBOR settings will cease after June 30, 2023. Immediately after June 30, 2023, the one-month, three-month and six-month U.S. dollar LIBOR settings will no longer be representative. Given these changes, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. It is also possible that U.S. LIBOR will be discontinued or modified prior to June 30, 2023.

Our Credit Facility provides that, if it is publicly announced that the administrator of LIBOR has ceased or will cease to provide LIBOR, if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative, or if either the administrative agent or lenders holding 50% of the aggregate principal amount of our revolving commitments and term loans elect, we and the administrative agent may amend our Credit Agreement to replace LIBOR with an alternate benchmark rate. This alternative benchmark rate may include a forward-looking term rate that is based on the secured overnight financing rate, also known as SOFR, published by the Federal Reserve Bank of New York.

Interest rates also affect our return on excess cash and investments. As of ~~August~~May 1, ~~2021,~~2022, we had ~~$262.7~~$275.2 million of cash and cash equivalents. A majority of our cash and cash equivalents generate interest income based on prevailing interest rates. Interest income, net of reserves, generated by our investments and cash and cash equivalents was not material in the ~~second~~first quarter of fiscal year ~~2022.~~2023. A significant change in interest rates would impact the amount of interest income generated from our cash and investments. It would also impact the market value of our investments.

Our investments are primarily subject to credit risk. Our investment guidelines prescribe credit quality, permissible investments, diversification, and duration restrictions. These restrictions are intended to limit risk by restricting our investments to high quality debt instruments with relatively short-term durations. Our investment strategy limits investment of new funds and maturing securities to U.S. Treasury, Federal agency securities, high quality money market funds and time deposits with our principal commercial banks. Outside of these investment guidelines, we also invest in a limited amount of debt securities in privately held companies that we view as strategic to our business. For example, many of these investments are in companies that are enabling the LoRa and LoRaWAN®-based ecosystem. We evaluate the credit risk of these investments on a quarterly basis and increased our current credit loss and reserves by $0.7 million in the six months ended August 1, 2021, related to the credit risk on our debt securities investments, resulting in a current expected credit loss reserve balance on our available-for-sale and held-to-maturity debt securities of $4.1 million as of August 1, 2021.

ITEM 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, our CEO and CFO concluded that, our disclosure controls and procedures were effective as of ~~August~~May 1, ~~2021.~~2022.

Changes in Internal Controls

As of ~~August~~May 1, ~~2021,~~2022, there were no changes to our internal control over financial reporting that occurred during the fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3637

PART II – OTHER INFORMATION

ITEM 1.Legal Proceedings

Information about our material legal proceedings is set forth in Note 1112 to the interim unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report and incorporated by reference herein.

ITEM 1A.Risk Factors

Please carefully consider and evaluate all of the information in this Quarterly Report and the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended January ~~31, 2021~~30, 2022. If any of these risks actually occur, our business could be materially harmed. If our business is harmed, the trading price of our common stock could decline.

The risk factors associated with our business have not materially changed as compared to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended January ~~31, 2021.~~30, 2022.

ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Issuer Purchase of Equity Securities

This table provides information with respect to purchases by us of shares of our common stock during the ~~second~~first quarter of fiscal year ~~2022.~~2023.

Fiscal Month/Year Total Number of
Shares Purchased Average Price Paid
per Share Total Number of
Shares Purchased
as Part of Publicly Announced Program Approximate Dollar
Value of Shares That May Yet Be Purchased Under
The Program (1)
May 2021 (05/03/21-05/30/21) — $ — — $ 364.2 million
June 2021 (05/31/21-06/27/21) 241,768 65.53 241,768 $ 348.4 million
July 2021 (06/28/21-08/01/21) 397,751 65.76 397,751 $ 322.2 million
Total activity 639,519 $ 65.67 639,519


Fiscal Month/Year	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares That May Yet Be Purchased Under The Program (1)
February 2022 (01/31/22-02/27/22)	—	$	—	—	$	259.4	million
March 2022 (02/28/22-03/27/22)	126,060	70.25		126,060	$	250.5	million
April 2022 (03/28/22-05/01/22)	636,033	64.69		636,033	$	209.4	million
Total activity	762,093	$	65.61	762,093

(1)The Company maintains an active stock repurchase program that was initially approved by our Board of Directors in March 2008. The stock repurchase program does not have an expiration date and our Board of Directors has authorized expansion of the program over the years. As of ~~August~~May 1, ~~2021,~~2022, we have repurchased ~~$476.2~~$589.0 million in shares of our common stock under the program since inception and the current remaining authorization under our stock repurchase program is ~~$322.2~~$209.4 million. Under our stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. Our repurchases may be made through Rule 10b5-1 and/or Rule10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions. We intend to fund repurchases under the program from cash on ~~hand.~~hand and borrowings on our Credit Facility. We have no obligation to repurchase any shares under the stock repurchase program and may suspend or discontinue it at any time.

ITEM 3.Defaults Upon Senior Securities

None.

ITEM 4.Mine Safety Disclosures

Not applicable.

ITEM 5.Other Information

None.

3738

ITEM 6.Exhibits

Documents that are not physically filed with this report are incorporated herein by reference to the location indicated.

Exhibit No.

Description

Location

3.1

Restated Certificate of Incorporation of Semtech Corporation

Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended October 26, 2003

3.2

Bylaws of Semtech Corporation

Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended January 27, 2008

~~10.1~~

~~Policy Regarding Director Compensation~~

~~Filed herewith~~

~~10.2~~

~~Letter Agreement dated as of May 26, 2021 by and between Semtech Canada Corporation and Gary M. Beauchamp~~

~~Filed herewith~~

~~10.3~~

First Amendment to Second Amended and Restated Credit Agreement, dated as of August 11, 2021, among Semtech Corporation, as borrower, the guarantors party thereto, the lenders party thereto and HSBC Bank USA, National Association, as administrative agent for the secured parties, swing line lender and L/C issuer.

~~Filed herewith~~

31.1

Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

Filed herewith

31.2

Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

Filed herewith

32.1

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Exhibit 32.1 is being furnished and shall not be deemed "filed")

Furnished herewith

32.2

Certification of the Chief Financial Officer Pursuant 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Exhibit 32.2 is being furnished and shall not be deemed "filed")

Furnished herewith

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~August~~May 1, ~~2021,~~2022, formatted in Inline XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flow and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~August~~May 1, ~~2021,~~2022, formatted in Inline XBRL (included as Exhibit 101).

3839

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		SEMTECH CORPORATION
		Registrant

Date:	~~September~~June 1, ~~2021~~2022	/s/ Mohan R. Maheswaran
		Mohan R. Maheswaran
		President and Chief Executive Officer
		(Principal Executive Officer; Duly Authorized Officer)

Date:	~~September~~June 1, ~~2021~~2022	/s/ Emeka N. Chukwu
		Emeka N. Chukwu
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

3940


PART I - FINANCIAL INFORMATION			3

ITEM 1. Financial Statements			4

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			36

ITEM 4. Controls and Procedures			37

PART II – OTHER INFORMATION			38

ITEM 1. Legal Proceedings			38

ITEM 1A. Risk Factors			38

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			38

ITEM 3. Defaults Upon Senior Securities			38

ITEM 4. Mine Safety Disclosures			38

ITEM 5. Other Information			38

ITEM 6. Exhibits			39


	Three Months Ended July 26, 2020
	Common Stock									Accumulated Other Comprehensive Loss
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings				Stockholders’ Equity		Noncontrolling Interest		Total Equity
Balance at April 26, 2020	65,132,030	$	785	$	(414,028)	$	460,961	$	620,928	$	(7,172)	$	661,474	$	243	$	661,717
Net income	—	—		—		—		16,125		—		16,125		(3)		16,122
Other comprehensive loss	—	—		—		—		—		(169)		(169)		—		(169)

Share-based compensation	—	—		—		11,343		—		—		11,343		—		11,343
Repurchase of common stock	(232,871)	—		(12,387)		—		—		—		(12,387)		—		(12,387)
Treasury stock reissued	120,342	—		2,320		(1,213)		—		—		1,107		—		1,107
Balance at July 26, 2020	65,019,501	$	785	$	(424,095)	$	471,091	$	637,053	$	(7,341)	$	677,493	$	240	$	677,733


	Six Months Ended July 26, 2020
	Common Stock									Accumulated Other Comprehensive Loss
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings				Stockholders’ Equity		Noncontrolling Interest		Total Equity
Balance at January 26, 2020	65,758,115	$	785	$	(387,851)	$	458,579	$	611,607	$	(6,166)	$	676,954	$	246	$	677,200
Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13	—	—		—		—		(314)		—		(314)		—		(314)
Net income	—	—		—		—		25,760		—		25,760		(6)		25,754
Other comprehensive loss	—	—		—		—		—		(1,175)		(1,175)		—		(1,175)

Share-based compensation	—	—		—		22,424		—		—		22,424		—		22,424
Repurchase of common stock	(1,087,913)	—		(42,387)		—		—		—		(42,387)		—		(42,387)
Treasury stock reissued	349,299	—		6,143		(9,912)		—		—		(3,769)		—		(3,769)
Balance at July 26, 2020	65,019,501	$	785	$	(424,095)	$	471,091	$	637,053	$	(7,341)	$	677,493	$	240	$	677,733